regulatory capital

Definition

The minimum cushion of high-quality capital that banks must maintain relative to their risk-weighted assets, determined by regulators who learned that 'trust us' isn't adequate oversight. Your taxpayer-funded insurance against banker recklessness.

Example Usage

The bank must maintain a Tier 1 regulatory capital ratio of at least 6% to satisfy Basel III requirements, though regulators prefer higher buffers.

Origin

Banking regulation terminology codified in Basel Accords after various banking crises.

Fun Fact

The 2008 crisis revealed that many banks' regulatory capital was full of dubious instruments, leading to much stricter definitions of what counts as 'capital.'

Source: Basel III banking regulations

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