What is high-quality capital?

High-quality capital refers to financial resources that are stable, reliable, and readily available to absorb losses, thereby enhancing a financial institution's resilience. It typically includes common equity, retained earnings, and certain types of subordinated debt, which provide a strong buffer against financial stress. Regulators often emphasize high-quality capital as it ensures that banks can maintain solvency and continue operations during economic downturns. In essence, it reflects a bank's ability to withstand adverse conditions while supporting lending and investment activities.