CraigJPerry 1 day ago

In a practical sense - reserves can’t be spent in the economy but you could withdraw your capital (accepting the impact on banking operations that would have) and use it to buy something. They’re different types of money. Reserves are only good for exchange by a few institutions and the central bank.

In a “model” sense for want of better phrasing that eludes me right now… One is infinite (via the discount window for reserves) and the other is very much finite.

In a hard legislation sense, capital is complicated, Basel regs recognise different types of capital and value them differently. But the tier 1 stuff is the equity you put into the bank to get it started or to support expanding its operations.

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eru 1 day ago

Yes. To oversimplify, capital is what's left after you take all your assets and subtract all your debt.

So you take all the investments that the bank has made (loans, but also their brand value, the office buildings they own and operate in, etc) and subtract all the deposits and outstanding bonds etc, and what's left over is their capital.

Another related way to measure that is to look at total market capitalisation. (But market cap makes economic sense, that's not the definition of loss absorbing capital that's used in the regulations.)