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.


Capital Adequacy Ratio (CAR)

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


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BREAKING DOWN '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.

  1. Capital

    1) Financial assets or the financial value of assets, such as ...
  2. Working Reserves

    Reserves held by banks above the required minimum level - or ...
  3. Key Ratio

    A mathematical ratio that illustrates and summarizes the current ...
  4. Tier 1 Capital

    A term used to describe the capital adequacy of a bank. Tier ...
  5. Tier 2 Capital

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

    The standardized requirements in place for banks and other depository ...
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  1. What is the minimum capital adequacy ratio that must be attained under Basel III?

    Under Basel III, the minimum capital adequacy ratio that banks must maintain is 8%. The capital adequacy ratio measures a ... Read Full Answer >>
  2. What measures can be used to evaluate the capital adequacy of a bank?

    The most commonly used assessment of a bank's capital adequacy is the capital adequacy ratio. However, many analysts and ... Read Full Answer >>
  3. 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 >>
  4. How do I calculate the capital to risk weight assets ratio for a bank in Excel?

    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 >>
  5. 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 >>
  6. 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 >>
  7. What is the difference between the capital adequacy ratio vs. the solvency ratio?

    Both the capital adequacy ratio and the solvency ratio provide ways to evaluate a company's debt versus its revenues situation. ... Read Full Answer >>
  8. 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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