Capital Adequacy Ratio Formula
The CAR or CRAR is calculated by dividing the bank's capital by the total risk-weighted assets for credit risk, operational risk, and market risk.
What is the capital adequacy ratio formula?
Capital Adequacy Ratio = (Tier I + Tier II + Tier III (Capital funds)) /Risk weighted assets. The risk weighted assets take into account credit risk, market risk and operational risk. The Basel III norms stipulated a capital to risk weighted assets of 8%.
How do you calculate capital adequacy ratio risk?
What is the Capital Adequacy Ratio Formula? The CAR or the CRAR is computed by dividing the capital of the bank with aggregated risk-weighted assets for credit risk, operational risk, and market risk.
What is a good capital adequacy ratio?
Under Basel III, the minimum capital adequacy ratio that banks must maintain is 8%. 1 The capital adequacy ratio measures a bank's capital in relation to its risk-weighted assets.
What is capital adequacy ratio in banking?
The capital adequacy ratio (CAR) is a measure of how much capital a bank has available, reported as a percentage of a bank's risk-weighted credit exposures. The purpose is to establish that banks have enough capital on reserve to handle a certain amount of losses, before being at risk for becoming insolvent.