Bank capital – From a trickle to a flood
In the old days bank regulation was simple. A bank could go bust for two reasons. On the asset side of the balance sheet, its loans could turn sour. On the funding side, its customers could all demand their deposits back at the same time, causing a run on the bank. So prudential regulations were designed to ensure that banks knew who they were lending to and kept enough capital to cope with their funding requirements.
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