Capital adequacy ratio

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Capital adequacy ratio is defined as the ratio of a bank's capital to its Risk- weighted assets. It is sometimes abreveated as CAR, where CAR = capital / total assets.it is also known as CRAR abbreviated as capital to risk weighted assets ratio.Capital adequacy ratio is the ratio which determines the capacity of the bank in terms of meeting the time liablities and other risk such as credit risk,operational risk etc.

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A measure of a bank's capital. It is expressed as a percentage of a bank's risk weighted credit exposures.

Also known as "Capital to Risk Weighted Assets Ratio (CRAR)."

This ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world.

Two types of capital are measured: tier one capital, which can absorb losses without a bank being required to cease trading, and tier two capital, which can absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors.

Capital adequacy ratios are a measure of the amount of a bank's capital expressed as a percentage of its risk weighted credit exposures.

An international standard which recommends minimum capital adequacy ratios has been developed to ensure banks can absorb a reasonable level of losses before becoming insolvent.

Applying minimum capital adequacy ratios serves to protect depositors and promote the stability and efficiency of the financial system.

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