Bank capital, and a bank’s liquidity position, are concepts that are central to understanding what banks do, the risks they take and how best those risks should be mitigated. This article provides a primer on these concepts. It can be misleading to think of capital as ‘held’ or ‘set aside’ by banks; capital is not an asset. Rather, it is a form of funding — one that can absorb losses that could otherwise threaten a bank’s solvency. Meanwhile, liquidity problems arise due to interactions between funding and the asset side of the balance sheet — when a bank does not hold sufficient cash (or assets that can easily be converted into cash) to repay depositors and other creditors. Banks are suppose to ensure that they have sufficient capital and liquidity resources to properly account for the risks that they take. The truth is as long as they are speculative and trading entities the job is impossible. They will wipe out each and every time. Below is a PDF you can look at to give you some idea of the bullshit they spin that they can be managed
g.Bank liquidity and capital shocks in unconventional times-1
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