Finance & History Capital in Banking
Jul 7, 2025
Simon Amrein, a Banking Professor at the Luzern School of Business, dives into the complex world of banking capital. He discusses the historical funding of banks and the impacts of excessive leverage, pondering if more capital truly leads to safer institutions. The conversation explores hidden reserves, economic stability, and the delicate balance between regulation and efficiency. Amrein also reflects on how the post-WWII financial landscape shifted global perspectives on risk and accountability, shaping modern banking practices.
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Capital Links to Stability
- Capital functions as a critical loss absorber that ensures bank stability during crises.
- Due to its importance, capital regulation is universally implemented across banking sectors worldwide.
Historic Bank Funding Shift
- Historically, bank funding centered on attracting depositors, emphasizing trust via capital reserves.
- A major transformation occurred with capital markets developing, allowing banks to issue bonds and other debt forms.
Dual Role of Capital
- Capital serves two main functions: absorbing losses and inducing depositor trust.
- Government safety nets like deposit insurance can replace the trust role but not the essential loss absorption.
