Sponsor's Article > Managing Capital in Financial Institutions
Capital is key to any financial institution. Companies in other industries need capital to buy property and production equipment. For financial institutions, the primary function of capital is to cover unexpected credit and market risks losses, because risk of such losses inevitably accompanies a bank's core business of lending money and making markets. Thus, it is crucial for financial institutions to build an advanced economic capital framework and how that plays into current initiatives to implement the Basel II Capital Accord.
Capital matters to most corporations, but in different ways. Non-financial companies need capital mainly to buy property and to build or acquire production facilities and equipment to pursue new areas of business. While this is also true for financial institutions, their main focus is different.
Banks evaluate and take risks daily as part of their core business processes. For example, commercial lending involves weighing the credit risk of new loans and their associated mitigates. This means
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