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Minimum capital is a concept used in corporate law and banking regulation to stipulate what assets the organisation must hold as a minimum requirement. The purpose of minimum capital in corporate law is to ensure that in the event of insolvency or financial instability, the corporation has a sufficient equity base to satisfy the claims of creditors.
A capital requirement (also known as regulatory capital, capital adequacy or capital base) is the amount of capital a bank or other financial institution has to have as required by its financial regulator. This is usually expressed as a capital adequacy ratio of equity as a percentage of risk-weighted assets.
Directive 2010/76/EU was to be implemented in two phases. The first, which affects the remuneration provisions, as well as a number of other ones dealing with the extension of some pre-existing minimum capital requirements, had to be implemented by 1 January 2011. The remaining provisions had to be implemented by 31 December 2011.
Basel II attempted to accomplish this by establishing risk and capital management requirements to ensure that a bank has adequate capital for the risk the bank exposes itself to through its lending, investment and trading activities. One focus was to maintain sufficient consistency of regulations so to limit competitive inequality amongst ...
The reserve requirement sets the minimum reserves each bank must hold to demand deposits and banknotes. This type of regulation has lost the role it once had, as the emphasis has moved toward capital adequacy, and in many countries there is no minimum reserve ratio. The purpose of minimum reserve ratios is liquidity rather than safety.
Because the required net capital amount is a "cushion" or "buffer" to cover a broker-dealer's continuing operating costs as it liquidates and any exceptional losses in selling assets already discounted in computing net capital, the required level of net capital is measured against a much more limited amount of liabilities or assets than ...
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The requirements for the issue of a bank license vary between jurisdictions but typically include: Minimum capital; Minimum capital ratio 'Fit and Proper' requirements for the bank's controllers, owners, directors, or senior officers; Approval of the bank's business plan as being sufficiently prudent and plausible.