Question

Discuss the bank crises from the view point of financial capital and liquidity.

Answer 1

The impact of the financial crisis changes the examination of how to look at the bank regualtion,bank supervision and financial stability.Bank regualtions before the financial crisis had become focused on using the risk to determine the appropriate regulatory levels of banks capital.However the risk on certain assets did not perform as expected when comapared with other assets or mortgages.

A lack of bank capital is the major cause of financial crisis beacause under capitalised banks could not absorb losses and have to be bailed out.But even now the banks are again lobbying out to weaken the new riles of capital..The banks assests must always cover its liabilities otherwise it becomes insolvent and it cannot continue to operate.So if the bank has enough capital to absorb the losses it simply marks down the value of its equity and any retained earnings until the losses are fully absorbed and the two sides are in balance again.