Search results
Results From The WOW.Com Content Network
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.
After obtaining the capital ratios, the bank capital adequacy can be assessed and regulated. In 1988, the Committee decided to introduce a capital measurement system commonly referred to as Basel I. In June 2004 this framework was replaced by a significantly more complex capital adequacy framework commonly known as Basel II.
A capital adequacy rating of 4 is appropriate if the credit union is "significantly undercapitalized" but asset quality, earnings, credit or interest-rate problems will not cause the credit union to become critically undercapitalized in the next 12 months.
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.
Risk-weighted asset (also referred to as RWA) is a bank's assets or off-balance-sheet exposures, weighted according to risk. [1] This sort of asset calculation is used in determining the capital requirement or Capital Adequacy Ratio (CAR) for a financial institution.
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 Tier 1 capital ratio is the ratio of a bank's core equity capital to its total risk-weighted assets (RWA). Risk-weighted assets are the total of all assets held by the bank weighted by credit risk according to a formula determined by the Regulator (usually the country's central bank).
The Swiss Solvency Test (SST) is a risk based capital standard for insurance companies in Switzerland, in use since 2006. ... Capital adequacy ratio