Primer on capital relief trades and speciality finance

Banks hold equity (or equity-like) capital to account for unexpected losses resulting from banks' business operations. Expected losses, on the other hand, are covered by provisions or write-dows in the value of the 'impaired' assets. If loan assets in banks performed as per their expectations, banks would, in theory, never need equity capital since the income earned on the assets would exceed the income generated by its liabilities andl eave a positive 'net interest margin' from which banks oculd pay running costs and have some excess left over for profit,