Banks' Fragile Deposits Drive Need for Increased Capital, Reducing Liquidity
Banks need capital to stay stable and avoid financial trouble. More capital means less risk of problems, but also less money available for loans. The amount of capital affects how much banks can charge borrowers. The right balance of capital helps banks create liquidity, handle costs of trouble, and make borrowers pay back. Bank capital has decreased over time, and rules about how much capital banks need and deposit insurance have important effects.