Academic

William Goldman said of Hollywood that "nobody knows anything," and Steve Randy Waldman makes a similar point in this interesting, but surely misguided, post positing that "capital can't be measured."  Basically, the idea is that banks have an incentive to exaggerate their capital, and their shareholders have no incentive to call them on it, because capital rich banks may be TBTF, may be able to borrow on better terms, &c.

Now, I wouldn't do business with a bank - I certainly wouldn't loan it money - if there was no way to tell whether it was solvent or not.  Since sophisticated investors do let banks borrow from them, I suspect that capital - that is, solvency - is measured all the time by all sorts of people.  Still, it's always worth remembering, as Waldman does (and this is what appeared to inspire the post) how quickly the values of intangible financial assets can change, how frequently financial intermediaries are subject to a run on the bank, all of which is a good reason to make them smaller: