# Do banks need recapitalization with 85bn on deposit



## dockingtrade (8 Nov 2009)

No expert so can someone explain. A banks abililty to lend depends on how well capitlaized they are. 
capital = depsosits, bonds, assets .
If there is 85 bn on depsosit why do they need to be re-capped?

Especially since deposits have risen so much since the nama requirement amount was determinded


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## z109 (9 Nov 2009)

85 bn is not much use when they've already spent it on tat. Tat that is worth less than the combined 85 bn in deposit and 300some bn in bonds. Banks don't really hold on to money, beyond a small amount that they are required to deposit in the central bank. They spend it on assets (loans they give out or assets they buy (like government bonds)). Making money on those assets lets them pay interest on deposits.

So, the money on deposit is already spent... and they haven't got much to show for it.


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## Brendan Burgess (9 Nov 2009)

Capital is not "deposits, bonds, assets" 

A bank's capital is, in simplified terms, the shareholders' funds + long-term bonds. This is the risk finance. This is the money which can be used to take the hit, if the loans go bad. 

So let's say that I set up a bank tomorrow with a share capital of €1m. 

I can attract deposits of €10m and I make loans of €11m. I need the €1m in capital in case some of the loans go bad. 

Now, let's say that I attract deposits of €100m. I am not allowed lend out more than €11m of this as I don't have enough capital to absorb the loans.

So leave out the deposits and most of the bonds from the capital. "assets" in this case have no direct relevance.


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## onq (5 Apr 2010)

I see.

This may explain why a Front line contributor suggested we need 60 Billion in Capital to help service 360 Billion in the estimated liquidity that is required for the Irish economy, and why we cannot do it.

No I don't know where he got his figures from - he was an economist, and I may have misheard him, but that's as I recall it.

ONQ.


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