Raising bank capital is an issue near the top of the agenda at Thursday’s summit meeting of G-20 leaders that President Obama is hosting in Pittsburgh. It’s too bad that few of the leaders fully understand it.

Bank capital, simply defined, is the cushion banks set aside to absorb losses. But calculating a bank’s risks and how much it should keep as a reserve is a technical issue usually intricately negotiated by bank supervisors who meet regularly in Basel, Switzerland.

“It’s very clear that capital levels were far too low before the crisis started,” says Harald Benink, a banking professor at Tilbury University in the Netherlands. “There was a confidence crisis in the markets—banks didn’t want to lend money to each other, and the reason for that was there was concern about each other’s solvency.”

Just how bad is the bank capital problem? The International Monetary Fund estimated in April that it would take banks in the U.S. and Europe $875 billion in new capital just to raise their leverage—equity divided by total assets—to the level prevailing before the crisis began. It would take $1.7 trillion to get banks back to the leverage ratios prevailing in the 1990s. And that’s not even counting the new capital that some governments want to establish as an international standard.

The move to boost capital is being pushed by Treasury Secretary Timothy Geithner, who wrote in the Financial Times that “strengthening capital requirements is an essential part of a broader effort to modernize our regulatory framework so that the financial system is strong enough to withstand the failure of large, complex institutions.”

Geithner is pressing the other members of the G-20 to accept not only that capital requirements for all banks should be increased, but also that firms that could pose a threat to overall financial stability—companies such as Citigroup in the recent crisis—should have to set aside more capital than other financial firms. Geithner wants an international agreement because otherwise U.S. banks that raise capital would be at a competitive disadvantage.

The problem is that not all countries want to raise their banks’ capital. European banks, for example, hold less capital than American banks. According to the IMF, the leverage ratio at European banks at the end of 2008 was at 2.5 percent, compared with 3.7 percent in the U.S.

“Many European banks would have to raise enormously more bank capital in conditions where it is still far from clear that markets will provide it,” Jeremy Warne wrote in London’s Daily Telegraph. “As in Britain, already overstretched governments might need to plug the gap.”