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What is Core Capital?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 25 November 2016
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    Conjecture Corporation
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Core capital is the minimum amount of resources that any type of thrift must have on hand in order to be in compliance with the regulations put in place by the Federal Home Loan (FHL) Bank. Unless the amount of core capital meets FHL regulations, the thrift will not be able to extend services and provide accounts for new customers. The identification of core capital is a valuable tool in making sure that consumers are adequately protected when it comes to the process of establishing financial accounts.

In order to understand the way that core capital functions, it is important to define the nature of a thrift in terms of finances. Essentially, a thrift is any type of financial organization that is created and properly licensed to establish accounts for individuals. The creation of a thrift is accomplished with the expectation that the organization will remain fiscally viable and thus be able to provide services to customers in the long term. One of those provided services is the ability to accept deposits into savings accounts and hold the deposits on behalf of the customer.

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Thrifts such as savings banks or savings and loan institutions are required to maintain a constant minimum balance of capital on hand in order to operate within federal regulations. By establishing this requirement of minimum capital on hand, the FHL helps to establish a situation where individuals can reasonably expect that all deposits made into savings accounts will be available at a later date for withdrawal, without any issues slowing the process.

The establishment of core capital as a basic requirement for functioning as a savings bank also helps to keep the financial community stable as well. Because of this requirement, the chances of failures by savings and loans or savings bank are greatly reduced. This one simple benefit helps to maintain consumer confidence, keep financial institutions viable, and overall minimize shifts in the general economy. In short, core capital helps to minimize the chances for a recurrence of the dire economic conditions that have occurred in the past, such as the run on the banks that took place after the stock market crash of 1929.

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anon77588
Post 3

Loans earn profits for banking systems. Core capital is stockholders equity. A bank makes the majority of its profits from issuing loans, therefore it is the primary resource of a banks assets.

anon77029
Post 2

Core/primary capital is a bank's book value of common stock plus perpetual (nonmaturing) preferred stock plus minority equity interests held by the bank in subsidiaries.

gusrabson
Post 1

But what counts as core capital?

Deposits are liabilities, not assets, so they don't count. Loans are assets -- it does not seem reasonable to count loans as core assets.

I am really puzzled.

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