Risk-Adjusted Capital Ratio

DEFINITION of 'Risk-Adjusted Capital Ratio'

A measure of a financial institutions that compares total adjusted capital (TAC) to the institutions risk-weighted assets. There are many variations of risk-adjusted capital ratios, depending on how the analyst defines capital. Risk-adjusted capital ratios are used to assess the capital adequacy of a financial institution. Analyzing these ratios can help determine whether a bank has enough capital to withstand a downturn in the economy.

BREAKING DOWN 'Risk-Adjusted Capital Ratio'

For instance, Standard and Poor's calculates adjusted common equity by taking common shareholder's equity, and adding minority interest-equity and subtracting items such as dividends, revaluation reserves, goodwill, tax loss carry forwards, interest-only strips and other adjustments. Then, preferred stock and general reserves are added to this adjusted common equity to get their total adjusted capital.

RELATED TERMS
  1. Cash Flow

    The net amount of cash and cash-equivalents moving into and out ...
  2. Capital

    1) Financial assets or the financial value of assets, such as ...
  3. Basel Accord

    A set of agreements set by the Basel Committee on Bank Supervision ...
  4. Capital Requirement

    The standardized requirements in place for banks and other depository ...
  5. Tier 2 Capital

    One of two categories by which a bank's capital is divided. Tier ...
  6. Excess Reserves

    Capital reserves held by a bank or financial institution in excess ...
Related Articles
  1. Personal Finance

    Using Economic Capital To Determine Risk

    Discover how banks and financial institutions use economic capital to enhance risk management.
  2. Options & Futures

    Bank Failure: Will Your Assets Be Protected?

    The SIPC and FDIC insure against personal financial ruin when banks or brokerages go belly up.
  3. Personal Finance

    How Basel 1 Affected Banks

    This 1988 agreement sought to decrease the potential for bankruptcy among major international banks.
  4. Insurance

    Fannie Mae, Freddie Mac And The Credit Crisis Of 2008

    Is the U.S. Congress' failure to rein in these mortgage giants to blame for the financial fallout?
  5. Insurance

    Basel II Accord To Guard Against Financial Shocks

    Problems with the original accord became evident during the subprime crisis in 2007.
  6. Investing Basics

    The Different Between Preferred and Common Stock

    Preferred and common stocks are different in two key ways.
  7. Term

    The Difference Between Forwards and Futures

    Both forward and futures contracts allow investors to buy or sell an asset at a specific time and price.
  8. Stock Analysis

    Analyzing GE's Preferred Stock (GE)

    Learn why General Electric Company's new Series D Perpetual Preferred stock is an excellent choice for investors desiring a safe and steady income stream.
  9. Stock Analysis

    Google Stock: A Tale of Two Share Classes (GOOG, GOOGL)

    Google stock comes in two different flavors with different rights for shareholders.
  10. Options & Futures

    Derivatives 101

    A derivative investment is one in which the investor does not own the underlying asset, but instead bets on the asset’s price movement with another party.
RELATED FAQS
  1. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Answer >>
  2. How do I calculate the inventory turnover ratio?

    The inventory turnover ratio is a key measure for evaluating how efficient management is at managing company inventory and ... Read Answer >>
  3. What are ComputerShare's escheatment services?

    Understand the process of escheatment and how it can affect shareholders. Learn about the ways that ComputerShare protects ... Read Answer >>
  4. What types of capital are not considered share capital?

    Find out what types of capital are not considered share capital, including an explanation of the different types of share ... Read Answer >>
  5. How does a forward contract differ from a call option? (AAPL)

    Find out more about forward contracts, call options, the mechanics of these financial instruments and the difference between ... Read Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    Find out about the difference between subscribed share capital and issued share capital, including an explanation of the ... Read Answer >>
Hot Definitions
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  2. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  3. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  4. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  5. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  6. Economies Of Scale

    Economies of scale is the cost advantage that arises with increased output of a product. Economies of scale arise because ...
Trading Center