<p>Different sides of the balance sheet.</p>

<ul>
<li>Capital represents long-dated instruments (infinite lifetime in the case of common equity) issued by a bank that are subordinated in a way to make them comparable to equity. (Can include instruments that are technically liabilities.) The existence of capital means that assets are greater than non-capital liabilities, i.e., the bank remains solvent.</li>
<li>A liquidity buffer are assets that are deemed liquid, which means that they can be readily sold at prices near carrying value to meet payment requirements. Note that a solvent entity that only holds hard-to-liquidate assets may be unable to meet a sudden payment obligation. That is, it is solvent, but illiquid.</li>
</ul>

CC BY-SA 4.0
2020-06-12T20:45:22.263Z
- What happens if a bank is solvent yet illiquid? Would they have to use the illiquid asset as collateral and take a loan on that?
curiousTrader
CC BY-SA 4.0
2020-06-12T21:48:19.660Z
They would  need to go to the central bank to be bailed out. If something is illiquid, you can’t easily borrow against it.
Brian Romanchuk
CC BY-SA 4.0
2020-06-11T12:03:42.243Z
2020-06-11T12:03:42.243Z
Brian Romanchuk
<p>Economic capital is what for example a bank has and uses in order to stay solvent. Isn't this in a way a liquidity buffer? or what would be the difference between them?</p>

<banking><capital><liquidity>
What's the difference of economic capital and liquidity buffer?
curiousTrader
# What's the difference of economic capital and liquidity buffer?

(Asked by: username_0 on 2020-06-11)

Economic capital is what for example a bank has and uses in order to stay solvent. Isn't this in a way a liquidity buffer? or what would be the difference between them?

**Tags:** banking, capital, liquidity


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## 1 answers

### Answer by username_1 on 2020-06-11. Score: 2 | Accepted answer

Different sides of the balance sheet.

* Capital represents long-dated instruments (infinite lifetime in the case of common equity) issued by a bank that are subordinated in a way to make them comparable to equity. (Can include instruments that are technically liabilities.) The existence of capital means that assets are greater than non-capital liabilities, i.e., the bank remains solvent.
* A liquidity buffer are assets that are deemed liquid, which means that they can be readily sold at prices near carrying value to meet payment requirements. Note that a solvent entity that only holds hard-to-liquidate assets may be unable to meet a sudden payment obligation. That is, it is solvent, but illiquid.

> **Comments:**
> **username_0**: - What happens if a bank is solvent yet illiquid? Would they have to use the illiquid asset as collateral and take a loan on that?  
> **username_1**: They would  need to go to the central bank to be bailed out. If something is illiquid, you can’t easily borrow against it.  

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