Bank Capital and Funding

Time and again, various academic publications explain to us that bank capital is actually cash funding, and therefore raising capital to meet higher requirements does not constrain lending, in fact it helps banks lend more. The underlying accusation, barely disguised behind a cynical tone, is that bankers do not understand capital is funding. I am afraid the issue is more that many non-bankers do not seem to realise that raising capital requirements and raising capital are not the same thing, but opposing factors which often cancel each other out. I will demonstrate that with a simple example below. Let's start with a bank which has 100 in loans, and a capital requirement of 10%. So its liabilities are 10 in capital and 90 in client balances. Now the authorities raise capital requirements to 15%. Suppose the bank goes out and raises that extra 5 in capital. Now its liabilities are 90 client balances, and 15 in capital. And its assets are 100 in loans and 5 in cash. Can it now g