Capital Adequacy Ratio - CAR
Definition of 'Capital Adequacy Ratio - CAR'
A measure of a bank's capital. It is expressed as a percentage of a bank's risk weighted credit exposures.
Investopedia explains 'Capital Adequacy Ratio - CAR'
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.