Regulatory Capital Requirements

Regulatory capital requirements are rules that determine how much financial cushion a bank or financial institution must hold to cover potential losses. These requirements ensure that institutions have enough funds to remain solvent during economic downturns or unexpected setbacks, protecting depositors and the broader financial system. Essentially, regulators set minimum capital levels to promote stability and confidence, so that even if some loans or investments don’t perform well, the institution can continue operating without risking failure. It’s a safeguard designed to balance risk and ensure ongoing financial resilience.