CHAPTER ONE

1.0   INTRODUCTION

The Oxford mini-dictionary explains that capital is “accumulated wealth” or “money with which a business is started’ in banking, capital has these two meanings. At the out-set, capital in the form of issued and paid up shares is money with which the business is started. Overtime, the capital funds of the bank reflect the accumulated (addition of depletion of capital in goods producing business, the needed for capital is obvious as this is required to provide for substantial fixed capital resources in the form of building, plant and machinery and even working capital in form of raw material. The need for capital is not the same for business organizations. In the financial services industry, market forest and contemporary history have accentuated the need for higher capitalization of banks. The professional know how of the operators is another key factor in the inter mediation between the savers and the borrowers. Thus the first banker the Gold smith did not require additional capital beyond what he had. However, today the ingenuity of the banker has been developed so much that we can talk of the banker being engaged in financial engineering.

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