Capital And Liquidity

When a bank provides loans and borrowers can not pay, Insolvency of the bank not only capital spending but also DPK shareholder bank, the natural business of banks is' highly geared 'or' highly leveraged '.

Gearing
Gearing is the ratio of debt to the company's capital. Almost all banks (except special bank) has a high leverage for using DPK for the credit.

Capital
Capital is the number of shareholders in the investment bank as stated in the balance sheet. Capital a bank is the financial resources available for capital because of losses mengabsorb not need to be paid.

Insolvency
Insolvency is the inability of companies to pay all obligations due. Bank which is in the position of suffering is called solvency crisis.
Bank solvency crisis in the economy can affect the minor / local. However, when the page crisis affecting the banking sector, the economy may be affected.
There is a rumor about the problem can cause the depositor attract funds (rush). Because the bank can not ask the debtor to immediately settle the loan, the bank can experience the same fate as a result of bad debts and the bank will suffer a crisis of liquidity.
Without a mechanism for the management of liquidity, illiquidity / liquidity crisis can cause Insolvency. When widespread liquidity crisis, the impact on the economy will be the same as the impact of the crisis on the banking industry solvency.


Central banks as' lenders of last resort '
Role of central banks as a guardian (and as a supervisor) from the banking system began in the 18-th century.
In the interest of the community, because the status spesialnya, banks sometimes require assistance from the central bank. Central bank to provide support through their role as' lenders of last resort 'to maintain the stability of the financial system.
As' lenders of last resort 'central bank provides funds to commercial banks to ensure that the solvency or liquidity crisis will not become the economic crisis.