©2009, The McGraw-Hill Companies, All Rights Reserved 22-28 McGraw-Hill/Irwin Insolvency Risk The economic meaning of capital is net worth –net worth is equal to the difference between the market value (MV) of an FI's assets and the market value of its liabilities –the market value or mark-to-market value basis uses balance sheet values that reflect current rather than historical prices Regulatory and accounting-defined capital is based in whole or in part on historical or book values (BV) The economic meaning of capital is net worth –net worth is equal to the difference between the market value (MV) of an FI's assets and the market value of its liabilities –the market value or mark-to-market value basis uses balance sheet values that reflect current rather than historical prices Regulatory and accounting-defined capital is based in whole or in part on historical or book values (BV)
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