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In Bank Rules Debate, Capital Matters—and Words, Too

Bad imagery can lead to bad policy in debating bank rules

Regulators don’t want banks to go bust in the next financial crisis, or even come close. So they’re requiring them to carry thicker safety cushions of “capital,” that miraculous loss-absorbing material.

So what exactly is capital? Sometimes it’s described as a rainy-day fund, which is wrong. More often it’s characterized as something banks “hold,” which can make it sound like a pile of money that has to be set aside so it can’t be lent out for a profit. That’s not right either.