Total Asset-To-Capital Ratio - TAC

AAA

DEFINITION of 'Total Asset-To-Capital Ratio - TAC'

A leverage covenant placed on Canadian Institutions regulated by the Office of the Superintendent of Financial Institutions (OSFI). The total asset to capital ratio is computed by taking the total assets divided by capital. It is not a risk-adjusted leverage measure and all Canadian banks are subject to a maximum TAC ratio of 23 times as of 2009.


Also referred to as the TAC Multiple.

INVESTOPEDIA EXPLAINS 'Total Asset-To-Capital Ratio - TAC'

TAC restrains the growth of banks because it restricts how many debt securities a bank can issue. Another way of looking at it is the amount of leverage a financial institution can take on.


An example of the TAC ratio would be that at a TAC ratio of 20-times, you can borrow $1900 and put in $100 to have $2000 in assets. The lower the ratio the more risk you can handle. If you have a high TAC ratio and the assets drop in value, there can be substantial losses as witnessed by American financial institutions during the late 2000s credit crisis with TAC ratios well over 40 in some cases.

RELATED TERMS
  1. Capital

    1) Financial assets or the financial value of assets, such as ...
  2. Tier 2 Capital

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

    The standardized requirements in place for banks and other depository ...
  4. Basel Accord

    A set of agreements set by the Basel Committee on Bank Supervision ...
  5. Tier 3 Capital

    Tertiary capital held by banks to meet part of their market risks, ...
  6. Asset

    1. A resource with economic value that an individual, corporation ...
Related Articles
  1. Personal Finance

    Using Economic Capital To Determine ...

  2. Options & Futures

    Risk Tolerance Only Tells Half The Story

  3. Personal Finance

    Is Your Bank On Its Way Down?

  4. Personal Finance

    How Basel 1 Affected Banks

Hot Definitions
  1. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  2. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  3. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  4. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  5. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center