February 25, 2009

Big banks keep insisting that they have all the capital they need — a claim that might strike many people as absurd at a time the government is spending billions of taxpayer dollars to prop up the financial industry.So here is a surprise: By some common measures, the banks do have enough capital.

The problem is, it is not the kind of capital investors think the banks need.For years, the question of what constitutes a bank’s capital, and how to measure it, was largely academic. But the issue is coming to the fore as federal regulators start administering a tough new “stress test” to 20 large banks on Wednesday to determine how the banks would withstand a severe economic downturn.