Abstract and Keywords
This Chapter focuses on bank capital and its role in risk management. After providing an overview of what bank capital is, the Chapter traces its emergence as a primary measure of banking soundness under the Basel Accord. More specifically, it examines Basel II’s introduction of bank risk measurement techniques for calculating regulatory capital to enhance the competitiveness and performance of banks while ensuring their stability. It also discusses Basel III’s attempts to reconceptualize the way bank capital supports financial stability by correlating its definition and measurement with the bank’s micro-prudential balance-sheet risks and the social implications of bank risk-taking for the broader economy and society. In addition, the Chapter considers the link between bank capital and bank corporate governance, along with its impact on financial stability and economic sustainability. Finally, it highlights the relationship between the concept of bank capital and the broader notion of ‘social’ capital.
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