The Magic of Vanishing Bank Capital

http://viableopposition.blogspot.ca/2013/07/the-magic-of-vanishing-bank-capital.html

The banking system requires a level of capital that is sufficient to preserve its stability.  Without this capital, the system will implode, something that very nearly came to pass during the crisis of 2008.  For those of my readers that are only vaguely familiar with the concept of bank capital, it is defined as "the difference between the value of a bank's assets and its liabilities.".  A bank's capital is basically the buffer of both cash and safe assets that banks possess and can access to protect creditors in case the bank's assets are liquidated.  In most cases, these funds are a mixture of equity (common and preferred shares) and debt that banks hold to support their ongoing business and to support the risks involved in the banking sector (and, as we all saw in 2008, there are plenty of risks in banking!).  You will often see the term "tier one capital"; this refers to the bank's most secure capital and this capital cannot be redeemed at the option of the holder (i.e. the shareholder in the case of equity) with core tier one capital being a subset of capital that is the most secure capital.  Banking system capital is measured against the value of the risky assets that a given bank holds.  Under the new Basel III rules, banks must have  a minimum ratio of 7 percent core tier one capital on its risk-weighted assets (i.e. its loan portfolio), up from a measly 2.5 percent under Basel II.  The phase-in period for the new enhanced capital rules will occur over several years with the entire implementation taking place in 2019.  In case you are interested, here is a link to an inte