bank capital management
like other corporations, banks must determine the level of capital that they should maintain. Bank operations are distinctly different from other types of firms because the majority of their assets (such as loans and security holdings) generate more predictable cashflows. thus, banks can use a much higher degree of financial leverage than other types of firms. the FDIC, which insures depositors, bears most of the risk in the event of failure. Depositors who are fully normally do not penalize banks for taking excessive risk, which could encourage some banks to use a high degree of financial leverage.