# Capital Requirements **The model:** The rule that banks must fund some minimum share of their assets with *equity* — owners' money that absorbs losses before depositors and taxpayers do. Capital is not cash in a vault; it is a claim structure: the thicker the equity slice, the bigger the loss a bank survives, and the more its owners lose first when bets go bad. ## The Mechanism Capital rules attack both halves of banking's core problem. Solvency: equity is the buffer between asset losses and creditor losses. Incentives: owners with real skin absorb their own downside, dulling the gamble-with-other-people's-money dynamic ([[Skin in the Game]] as regulation; [[Moral Hazard (Term)]] as the disease). The eternal battlefield is *risk weighting* — Basel-style rules scale required capital to modeled asset risk, and models are negotiable: sovereign debt at zero weight, mortgage models pre-2008, internal-model gaming. Banks call capital "expensive" because equity holders demand returns; the Modigliani-Miller rejoinder is that safety is what's being priced. Every basis point of the requirement is a lobbied line. ## KB Applications ### Basel III Endgame as live fight The 2023–26 fight over the U.S. Basel "endgame" — proposed increases, industry blitz (the ads-during-football campaign), 2025 retreat and re-proposal under deregulatory leadership — is the vault's cleanest current specimen of concentrated-interest lobbying versus diffuse-benefit rules; cross-file with the lobbying census and [[Regulatory Capture]]. [[Silicon Valley Bank]] showed the companion failure: interest-rate risk that the tailored-thresholds regime of 2018 exempted from the test. ### The buffer model generalized Capital-requirement logic transfers: margins of safety in engineering, cash reserves in households, redundancy in [[Antifragile]] systems — mandated slack as the price of surviving fat tails ([[Black Swan]] insurance the optimizers always want to trim). ## See Also - [[Volcker Rule]] — activity restriction, the complementary tool - [[SIFI]] — who gets the thickest buffers - [[Bank Run]] — what buffers buy time against