Banking Insights: Trends in Capital at District Banks: 1965–76
Capital-to-asset ratios and growth rates of capital are often used as quantifiable measures of the health of the banking industry and of individual bank soundness. The question of what constitutes adequate levels of these measures has been of concern to bank regulators for some time. The problem of bank capital assumes greater importance during periods when bank profits are depressed, both because capital is more likely to be called upon to cushion losses on assets during such periods and because additions to capital in the form of retained earnings do not keep pace with asset growth. The result is an erosion of capital-to-asset ratios, which can be exacerbated if bank assets continue to grow rapidly.