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 1 Capital

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

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

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

    A set of agreements set by the Basel Committee on Bank Supervision ...
  6. Asset

    1. A resource with economic value that an individual, corporation ...
RELATED FAQS
  1. What are some examples of general and administrative expenses?

    In accounting, general and administrative expenses represent the necessary costs to maintain a company's daily operations ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. How do dividend distributions affect additional paid in capital?

    Whether a dividend distribution has any effect on additional paid-in capital depends solely on what type of dividend is issued: ... Read Full Answer >>
  4. Why can additional paid in capital never have a negative balance?

    The additional paid-in capital figure on a company's balance sheet can never be negative because companies do not pay investors ... Read Full Answer >>
  5. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  6. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
Related Articles
  1. Personal Finance

    Using Economic Capital To Determine Risk

    Discover how banks and financial institutions use economic capital to enhance risk management.
  2. Options & Futures

    Risk Tolerance Only Tells Half The Story

    Just because you're willing to accept a risk, doesn't mean you always should.
  3. Personal Finance

    Is Your Bank On Its Way Down?

    Find out how the Tier 1 capital ratio can be used to tell if your bank is going under.
  4. Personal Finance

    How Basel 1 Affected Banks

    This 1988 agreement sought to decrease the potential for bankruptcy among major international banks.
  5. Fundamental Analysis

    Do Stock Splits Cause Volatility?

    Since stock splits decrease the stock price, do they also increase volatility because shares are traded in smaller increments? Investopedia examines assumptions about this increasingly common ...
  6. Investing

    Is It Time To Buy Commodities?

    Despite the news, the Athens Stock Exchange is down less than 5 percent year-to-date, while the Shanghai Composite remains up more than 10 percent.
  7. Fundamental Analysis

    Burger King and Tim Hortons Are Better Together

    In August 2014, 3G Capital announced that it was merging Burger King with Canadian coffee chain Tim Hortons to form Restaurant Brands International.
  8. Fundamental Analysis

    Macau: Not Your Father's Gambling Destination

    Macau has given Las Vegas casinos a run for their money, but what's behind the scenes? Here's an overview of Macau's gambling industry.
  9. Investing

    Is There Still Opportunity in Japanese Stocks?

    Japanese stocks’ strong performance has prompted market watchers to question whether there’s still a case for adding exposure to the Land of the Rising Sun
  10. Fundamental Analysis

    American Express Returns Vs. DJ Industrial Average

    American Express has handily outperformed the Dow Jones Industrial Average since 2009, but unusual weakness in the last year is taking its toll.

You May Also Like

Hot Definitions
  1. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  2. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  3. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  4. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  5. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  6. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!