Capital in Bank Regulation and Supervision

Abstract

In developed financial markets, minimum capital standards have been one of the most important tools to control risk and reduce exposure caused by safety net protection. A major element of strengthened regulation and supervision of banks in developing financial markets will be the creation and enforcement of rules relating to capital adequacy. Bank regulators and supervisors in developed financial markets have recognized that capital adequacy is important to assess the strength of individual banks, as well as to evaluate the safety and soundness of the entire banking system. Bank supervisors may also use capital adequacy to determine the propriety of bank reorganization through mergers and acquisitions, and expansion through branches and subsidiaries.