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. Basel Accord

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

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

    1. A resource with economic value that an individual, corporation ...
  5. Tier 1 Capital

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

    One of two categories by which a bank's capital is divided. Tier ...
Related Articles
  1. Using Economic Capital To Determine ...
    Personal Finance

    Using Economic Capital To Determine ...

  2. Risk Tolerance Only Tells Half The Story
    Options & Futures

    Risk Tolerance Only Tells Half The Story

  3. Is Your Bank On Its Way Down?
    Personal Finance

    Is Your Bank On Its Way Down?

  4. How Basel 1 Affected Banks
    Personal Finance

    How Basel 1 Affected Banks

comments powered by Disqus
Hot Definitions
  1. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  2. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  3. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  4. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  5. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  6. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
Trading Center