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# Bank Capital Adequacy

## Definition

The sufficiency of a bank's capital relative to its risks and obligations, which determines its ability to absorb losses and maintain operations during periods of stress. Adequate capital is essential for banking stability.

## Source Chapter

Book II, Chapter 2

## Context

Smith examines the importance of adequate capital for banking stability, showing how insufficient capital can lead to bank failure and broader economic disruption. He analyses the relationship between capital, risk, and stability.

## Economic Domain

Regulation

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