Economics Financial Regulation Questions
The purpose of capital adequacy requirements in financial regulation is to ensure that financial institutions maintain a sufficient level of capital to absorb potential losses and protect depositors and investors. These requirements aim to promote financial stability, reduce the risk of insolvency, and enhance the overall resilience of the financial system. By setting minimum capital standards, regulators can mitigate the likelihood and severity of financial crises, safeguarding the interests of both the institution and its stakeholders.