Capital Adequacy Ratio - CAR

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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.

 

Capital Adequacy Ratio (CAR)

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

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.

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RELATED FAQS
  1. What are some of the well-known no-load funds?

    The capital adequacy ratio promotes stability and efficiency of worldwide financial systems and banks. The capital to risk-weighted ... Read Full Answer >>
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    Calculate a bank's capital to risk-weighted assets ratio in Microsoft Excel once you determine its tier 1 and tier 2 capital ... Read Full Answer >>
  3. Why is the capital adequacy ratio important to shareholders?

    The capital adequacy ratio (CAR) measures the amount of capital a bank retains compared to its risk. National regulators ... Read Full Answer >>
  4. What is the difference between the capital adequacy ratio and the leverage ratio?

    The capital adequacy ratio, or CAR, is a metric applied specifically to banks, while a common leverage ratio is used by investors ... Read Full Answer >>
  5. What does it mean when a company has a high capital adequacy ratio?

    The capital adequacy ratio, also known as capital to risk-weighted assets ratio, measures a bank's financial strength by ... Read Full Answer >>
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