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Bank capital is the contrast between a bank's resources and its liabilities, and it addresses the total assets of the bank or its value worth to financial backers.

Following are the advantages to the bank for raising the amount of bank capital: -

• Sufficient capital has an adequate cushion against bank losses.
• Banks can avoid failures on loans.
• Banks can maintain sufficient assets that supply higher returns.
• It assists the bank to improve return on equity by improving its procedures.

Following are the costs of increasing the amount of bank capital: -

• In lack of sufficient capital, banks cannot meet the responsibilities of depositors and creditors.
• Lower capital would impact returns on equity.
• The Return on assets class would earn reduced in a lack of adequate capital.

The bank should keep a sufficient level of capital to avoid the cost and add benefits to shareholders. A suitable level of capital satisfies to prevent bank defeat.