Definition of Capital in Finance

Capital is a vague term which can refer to one of two things:

• Factories, machinery, equipment etc. owned by a company
• The value of financial assets such as cash, short-term securities etc.

In an economic context, capital usually refers to the former whereas in banking and finance, capital is the value of the financial assets. All financial institutions have a level of capital reserve which they must meet, which usually corresponds to risk-weighted assets.