Like commercial enterprises, the Federal Reserve banks have an equity cushion to cover losses.

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This latest reduction will leave the capital structure with an implied equity cushion of 50%, sources said.

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The lower liabilities are relative to assets, the greater is the equity cushion.

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Although that exposure was small compared with their portfolios, it could have a big impact because they have so little equity as a cushion.

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This is a kind of debt that will automatically convert into shares if the bank's cushion of equity capital falls below 5%.

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Mr Merton even argued that improved hedging techniques rendered equity capital unnecessary as a cushion against risk.

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At present this cushion against misfortune is provided by common equity, hence such contracts would become a partial substitute for equity.

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Barbara sold her condo, downsized her possessions, and put the equity from her sale in the bank as a security cushion.

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By cashing out their home equity now, many Americans may be spending what has been a vital cushion in old age for past generations.

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