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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