Capital requirements are standardized regulations in place for banks and other depository institutions that determine how much liquid capital (that is, easily sold securities) must be held viv-a-vis a certain level of their assets.

Also known as regulatory capital, these standards are set by regulatory agencies, such as the Bank for International Settlements (BIS), the Federal Deposit Insurance Corporation (FDIC), or the Federal Reserve Board (the Fed).

An angry public and uneasy investment climate usually prove to be the catalysts for legislative reform in capital requirements, especially when irresponsible financial behavior by large institutions is seen as the culprit behind a financial crisis, market crash, or recession.

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