Capital ratio

Updated: Aug 20, 2021

The ratio of the capital of a bank to its risk weighted assets. The weights applied to the assets are determined by risk-sensitivity ratios as defined by the relevant Basel Agreement. Capital ratios are measures of the capital strength of a bank, and are used by regulatory agencies to assess the resilience of a bank to losses and compliance with regulations. The capital of a bank can be defined in different ways. Tier 1 measures core capital and consists of share capital and disclosed reserves, but may also include non-redeemable non-cumulative preferred stock. Tier 2 includes supplementary capital such as undisclosed reserves, revaluation reserves, general provisions, hybrid instruments, and subordinated term debt. See also Basel Agreement.

Reference: Oxford Press Dictonary of Economics, 5th edt.

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James Knight
Editor of Education
James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.