section_path: Capital and risk
section_name: Capital and risk
paragraph_text: Capital and risk
  
  Banks face a number of risks in order to conduct their business, and how well these risks are managed and understood is a key driver behind profitability, and how much capital a bank is required to hold. Bank capital consists principally of equity, retained earnings and subordinated debt.
  
  Some of the main risks faced by banks include:
  
  The capital requirement is a bank regulation, which sets a framework within which a bank or depository institution must manage its balance sheet. The categorisation of assets and capital is highly standardised so that it can be risk weighted.
  
  After the financial crisis of 2007–2008, regulators force banks to issue Contingent convertible bonds (CoCos). These are hybrid capital securities that absorb losses in accordance with their contractual terms when the capital of the issuing bank falls below a certain level. Then debt is reduced and bank capitalisation gets a boost. Owing to their capacity to absorb losses, CoCos have the potential to satisfy regulatory capital requirement.