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.