The consequences of the capital regulation in credit institutions according to the Basel agreements

Abstract

Capital is one of the key factors to be considered when the safety and soundness activity of bank is evaluation. An adequate capital based serves as a safety network for a variety of ricks to which a bank is exposed in the course of its business. He absorbs the possible losses and provided a basis for maintaining depositor confidence in bank. Also, the capital is the ultimate determinant of a bank’s lending capacity. A bank’s balance sheet cannot be expanded beyond the level determined by its capital adequacy ratio. Therefore, the availability of capital consequently determines the maximum level of assets.