What is bank capital?

Bank capital is accurately defined as the difference between a bank's assets and liabilities. This represents the net worth of the bank, essentially serving as a cushion against losses. It is the financial foundation that allows the bank to absorb losses without becoming insolvent. Bank capital is critical for regulatory purposes, as it ensures that banks can meet their obligations to depositors and other creditors. It also plays a crucial role in maintaining trust in the financial system, as stakeholders are more likely to have confidence in a bank that has sufficient capital to withstand economic fluctuations.

The other options do not capture the essence of what bank capital is. While the funds required to open a bank are indeed important for starting a banking institution, they do not encompass the ongoing financial health or risk management aspect of bank capital. Similarly, loans held by a bank from other institutions and total deposits represent liabilities and assets, respectively, but they do not reflect the net worth that constitutes bank capital.