ABSTRACT
Banks are subject to various forms of regulation, intended to ensure their solvency. Commonly, regulators seek to achieve this goal by imposing an upper bound on the banks' leverage (i.e. through the use of the minimum capital requirement). The capital regulation is the most controversial one owing to the imprecise nature of measuring and enforcing capital standards. Basically, regulators prefer more capital to less since banks will become insolvent when their losses exceed equity and the regulators assume that, the higher the level of capital, the less the risk.
