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Capital adequacy ratio is the ratio which determines the bank's capacity to meet the time liabilities and other risks such as credit risk, operational risk etc. In the most simple formulation, a bank's capital is the "cushion" for potential losses, and protects the bank's depositors and other lenders.
A capital requirement (also known as regulatory capital, capital adequacy or capital base) is the amount of capital a bank or other financial institution has to have as required by its financial regulator. This is usually expressed as a capital adequacy ratio of equity as a percentage of risk-weighted
Basel III requires banks to have a minimum CET1 ratio (Common Tier 1 capital divided by risk-weighted assets (RWAs)) at all times of: . 4.5%; Plus: A mandatory "capital conservation buffer" or "stress capital buffer requirement", equivalent to at least 2.5% of risk-weighted assets, but could be higher based on results from stress tests, as determined by national regulators.
Return of capital adequacy ratio (final version) – Completion instructions, HKMA; Return Templates of capital Adequacy Ratio, HKMA; Others. An academic response to Basel II; Coherent measures of risk (a widely quoted paper) FRB Boston paper on measurement of operational risk Archived 2008-03-17 at the Wayback Machine; Daníelsson, Jón.
Determining the adequacy of a credit union's capital begins with a qualitative evaluation of critical variables that directly bear on the institution's overall financial condition. Included in the assessment of capital is the examiners opinion of the strength of the credit union's capital position over the next year or several years based on ...
Supervisory review of an institution's capital adequacy and internal assessment process; Effective use of disclosure as a lever to strengthen market discipline and encourage sound banking practices. Capital requirements for operational risk were introduced for the first time. The ratio of equity and credit is 8% under Basel II. The standards ...
The term standardized approach (or standardised approach) refers to a set of credit risk measurement techniques proposed under Basel II, which sets capital adequacy rules for banking institutions. Under this approach the banks are required to use ratings from external credit rating agencies to quantify required capital for credit risk. In many ...
The adoption of the Basel II guidelines in 2004 was followed at EU level by a recast of the Banking Directive on the one hand (Directive 2006/48/EC) and the Capital Adequacy Directive (Directive 93/6/EEC) on the other hand (Directive 2006/49/EC). These two Directives were officially adopted on 14 June 2006 and published in the Official Journal ...