Regulated firms such as banks are required to hold a minimum amount of capital as a rainy day fund in the hope that it stops them going bust too easily.

Regulators set the level of this minimum capital and impose various “capital adequacy” tests that firms have to pass. A typical test might involve comparing the value of a firm’s “own funds” to its risk-weighted assets to ensure it is adequately cushioned should its asset base suddenly become threatened by third party defaults.