Painful but necessary: how banks rebuild capital

There are four ways banks can rebuild capital following a crisis. But, whether it's just the shareholders who lose out or the economy as a whole, someone's going to suffer.

Banks and other financial companies operate with lots of leverage. This is good for bank shareholders when times are good, but very bad when loan losses start impairing assets.

If a bank were to invest its capital 6% in mortgages on an "unlevered" basis, its return on equity would be 6% the same return you'd get if you invested your equity, or savings, in a Treasury bond yielding 6%.

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