Capital levels are a poor predictor of bank failure

finance
Created 4/28/2024
Updated 4/28/2024

Did you know that even with strong "capital ratios" (think of it as a bank's financial buffer against bad times), some big banks still went belly-up? Yep, Silicon Valley Bank, Credit Suisse, Citigroup, and Royal Bank of Scotland had plenty of this buffer but still crashed. Turns out, having a lot of money in the bank isn't the only thing that keeps it from failing. Mismanagement, poor business models, and risky decision-making were the real culprits. Now, regulators are scratching their heads, thinking maybe they should look at things like the bank's culture or even the gender diversity of their risk committees to predict trouble better. So, next time you hear banks moaning that they've got enough capital, remember, it's not just about the money!

Original Article


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