What is the '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.

BREAKING DOWN '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. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company ...
  2. Office Of The Superintendent Of ...

    An independent agency responsible for the regulation of banks, ...
  3. Current Ratio

    The current ratio is a liquidity ratio measuring a company's ...
  4. Capitalization Ratios

    Indicators that measure the proportion of debt in a company’s ...
  5. Bond Ratio

    A financial ratio that expresses the leverage of a bond issuer. ...
  6. Risk-Adjusted Capital Ratio

    A measure of a financial institutions that compares total adjusted ...
Related Articles
  1. Investing

    Analyze Investments Quickly With Ratios

    Make informed decisions about your investments with these easy equations.
  2. Personal Finance

    Explaining the Tier 1 Leverage Ratio

    The Tier 1 leverage ratio measures a bank’s core capital against its total assets.
  3. Investing

    Ratio Analysis

    Ratio analysis is the use of quantitative analysis of financial information in a company’s financial statements. The analysis is done by comparing line items in a company’s financial ...
  4. Investing

    Key Financial Ratios to Analyze Investment Banks

    Find out which financial ratios are most useful when analyzing an investment bank, and why tracking capital efficiency is especially important.
  5. Investing

    Financial Ratios to Spot Companies Headed for Bankruptcy

    Obtain information about specific financial ratios investors should monitor to get early warnings about companies potentially headed for bankruptcy.
  6. Investing

    4 Leverage Ratios Used In Evaluating Energy Firms

    Analysts use specific leverage ratios to compare firms within an industry. A basic understanding of these ratios helps when evaluating oil and gas stocks.
  7. Investing

    5 Basic Financial Ratios And What They Reveal

    Understanding financial ratios can help investors pick strong stocks and build wealth. Here are five to know.
  8. Small Business

    Total Debt to Total Assets

    Total Debt to total assets, also called the debt ratio, is an accounting measurement that shows how much of a company’s assets are funded by borrowing. In business, borrowing is also called leverage.
  9. Investing

    Calculating Long-Term Debt to Total Assets Ratio

    A company’s long-term debt to total assets ratio shows the percentage of its assets that are financed with long-term debt.
  10. Investing

    Analyzing Oracle's Debt Ratios in 2016 (ORCL, SAP)

    Learn how the debt ratio, debt-to-equity ratio and debt-to-capital ratio are used to evaluate Oracle Corp.'s liabilities, equity and assets.
RELATED FAQS
  1. How do leverage ratios help to regulate how much banks lend or invest?

    Learn what leverage ratios mean for banks, how regulators restrict leverage, and what impact ratios have on a bank's ability ... Read Answer >>
  2. What is the difference between the capital adequacy ratio and the leverage ratio?

    Explore what differentiates the capital adequacy ratio from any one of several leverage ratios used for equity evaluation ... Read Answer >>
  3. Over what duration should I be evaluating a company's total debt to total assets ...

    Learn what duration to use when analyzing the total debt to total assets ratio in a company and how to track a company's ... Read Answer >>
  4. Besides operating leverage, what are other important forms of leverage for businesses?

    Learn about what other forms of leverage exist for businesses besides operational leverage, and the primary leverage metrics ... Read Answer >>
  5. Which leverage ratios are most useful for analyzing manufacturing companies?

    See which leverage ratios investors and creditors are likely to use when analyzing the debt burdens for manufacturing companies. Read Answer >>
  6. How do stock dividends affect the retained earnings account?

    Understand the difference between financial ratio analysis and accounting ratio analysis. Learn why ratio analysis is important ... Read Answer >>
Hot Definitions
  1. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  3. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  4. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  5. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  6. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
Trading Center