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Capital has both general and specific meanings that could be broadly summarized as 'money used to generate wealth through investment'.

Marx to markets[edit]


In the fourth chapter of Karl Marx's classic 1865 political-economic treatise "Das Kapital", entitled: The General Formula for Capital, Marx introduced the now-accepted idea of the accumulation of capital through investment as a never-ending cycle under 'capitalism' by showing how societies had progressed from using money as a means to buy commodities to using money to produce commodities as a means to increase value.[1] [2] Today most such value-producing capital is held by retail banks, investment banks and other institutional investors who manage capital on behalf of investors. Such capital was previously subject to strict definition and regulation only at the retail-banking level, but similar restrictions have recently been expanded to the investment-bank level.

Kinds of capital[edit]

The standard accounting view of business capital focuses on the claims side of the balance sheet that represent sources of funding, such as shareholders' equity and paid-in earnings.[3] But regulators of financial insitutions like the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve and the Bank of International Settlements (BIS) also take account of risk factors associated with different kinds of capital assets. Regulators assign different 'tiers' to bank assets when deciding what percentage of total assets must be held as required liquid capital, also called regulatory capital, at each tier. Such capital ratios are generally around 10 percent.

The Swiss-based BIS several years ago enacted the so-called Basel II accord that revised its supervisory regulations governing all global banks,[4] which domestic regulators generally base their measurements on. However, its strict guidelines have been criticized as rigid and out-of-touch with shareholder expectations by advocates of measuring 'economic capital', which focuses on risk from the point of view of the risk bearer.[5]