Capital Requirements Directive
A capital requirements directive is a set of rules that banks and other financial institutions must follow to make sure they have enough money to keep running. Imagine you have a piggy bank where you keep your money. You can only spend the money in your piggy bank if you have enough saved up. It's the same for banks, they can only use the money they have saved up to make investments and loans.
The capital requirements directive helps banks figure out how much money they need to have saved up based on how much risk they are taking. For example, if a bank wants to make a loan to someone who might not be able to pay it back, that's a big risk. The bank needs to make sure it has extra money saved up in case the loan doesn't get paid back. This extra money is called "capital."
The capital requirements directive also helps protect people's money in case the bank goes bankrupt. If a bank has enough capital saved up, it's more likely that people will get their money back if the bank fails.
So, in summary, a capital requirements directive is like a set of rules that helps banks make sure they have enough money saved up to keep running and protect people's money if the bank goes bankrupt.
The capital requirements directive helps banks figure out how much money they need to have saved up based on how much risk they are taking. For example, if a bank wants to make a loan to someone who might not be able to pay it back, that's a big risk. The bank needs to make sure it has extra money saved up in case the loan doesn't get paid back. This extra money is called "capital."
The capital requirements directive also helps protect people's money in case the bank goes bankrupt. If a bank has enough capital saved up, it's more likely that people will get their money back if the bank fails.
So, in summary, a capital requirements directive is like a set of rules that helps banks make sure they have enough money saved up to keep running and protect people's money if the bank goes bankrupt.