Risk capacity represents the absolute ceiling of risk exposure an organization can withstand before facing existential threats or regulatory intervention. Unlike risk appetite, which reflects willingness to take risk, capacity is determined by capital reserves, liquidity positions, operational redundancies, and stakeholder obligations. A bank's risk capacity might be constrained by regulatory capital requirements even if management has appetite for more lending risk. Organizations must ensure their risk appetite remains within their risk capacity boundaries. Exceeding capacity can trigger insolvency, credit downgrades, or loss of operating licenses.