An investment bank will hold financial assets, such as equities with the intention of selling them in the short term. These equities, recorded as held for trading assets, are recorded on a bank's balance sheet and valued each day in a process called marking to market. If the bank incurs losses on these equity investments, these losses will be absorbed by the bank's equity. In this example, a bank's total assets initially total 160.

Of these, 100 are marked to market equities. On the funding side, the bank has 20 of equity.

If the bank experiences a 10% fall in equity markets, this will bring the marked to market value of the equities on their balance sheet down to 90, a loss of 10. However, this entire loss is absorbed by the equity. It's doing its job as a buffer to keep the bank solvent. However, equity has fallen by 50%. There's now only 10 of equity left and that means a higher chance of insolvency were there to be a similar mark to market loss in the future.