Capital requirements are set in place to help ensure that a bank has a cushion available in case many borrowers default simultaneously.

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Capital requirements are regulatory standards for banks that determine the minimum amount of capital a bank must hold in relation to its assets. These requirements are designed to ensure that a bank has enough capital to absorb losses and protect depositors if a significant number of borrowers default on their loans, thereby enhancing the stability and integrity of the financial system.

Capital Requirements Are Set in Place to Help Ensure That