Topic Details (Notes format)

Capital Adequacy Ratio

Subject: Economy

Description

The Capital Adequacy Ratio (CAR) measures a bank’s financial stability by comparing its capital to its risk-weighted assets. A higher CAR indicates a bank’s ability to absorb potential losses. Example: A bank with $10 billion in risk-weighted assets and $1 billion in capital has a CAR of 10%, ensuring it can cover potential loan defaults.

Summary

CAR measures a bank’s capital compared to its risk-weighted assets.