Capital Adequacy Ratio - CAR

What does it Mean? 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)."
Investopedia Says... 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.

Terms Related Links

Basel Accord
Capital
Capital Requirement
Excess Reserves
General Provisions
Tier 1 Capital
Tier 2 Capital
Tier 3 Capital

Terms Related Links
Capital Adequacy of Financial Intermediaries - A good tutorial on how to calculate CAR.

Does The Basel Accord Strengthen Banks? - This 1988 agreement sought to decrease the potential for bankruptcy among major international banks.




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