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Understanding Capital Adequacy Ratio

Capital adequacy ratios (CAR) assess risk by comparing a bank's capital to its assets. Regulators use the CAR, which is the ratio of a bank's capital to its risk weighted assets, to determine if banks have sufficient capital. The CAR is calculated by dividing the total of Tier I and Tier II capital by total risk weighted assets.

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Ajaya Dhakal
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8 views1 page

Understanding Capital Adequacy Ratio

Capital adequacy ratios (CAR) assess risk by comparing a bank's capital to its assets. Regulators use the CAR, which is the ratio of a bank's capital to its risk weighted assets, to determine if banks have sufficient capital. The CAR is calculated by dividing the total of Tier I and Tier II capital by total risk weighted assets.

Uploaded by

Ajaya Dhakal
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

What is CAR?

Capital adequacy provides regulators with a means of


establishing whether banks and other financial
institutions have sufficient capital to keep them out of
difficulty. Regulators use a Capital Adequacy Ratio
(CAR), a ratio of a banks capital to its assets, to assess
risk.
CAR = (Banks Capital)/(Risk Weighted Assets)
= (Tier I Capital + Tier II Capital)/(Risk Weighted
Assets)

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