capital adequacy ratio

Definition

A bank's capital expressed as a percentage of its risk-weighted assets, essentially measuring whether a financial institution has enough cushion to survive its own bad decisions. Regulators love it; bank executives pretend to.

Example Usage

After the stress test, the bank's capital adequacy ratio fell below regulatory minimums, triggering stern letters and dividend suspensions.

Origin

Formalized in the Basel Accords starting in 1988, following several decades of banking crises that suggested maybe banks shouldn't be quite so leveraged

Fun Fact

The infamous Basel III framework requires banks to maintain a minimum 8% ratio, though critics note this means banks can lose 92% of their capital before regulators get really worried.

Source: Basel Committee banking regulations

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Capital Expenditure

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Quantitative Easing

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creditor

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current ratio

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receivable

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