Capital adequacy
Also called: capital adequacy ratio, CRAR, risk-weighted assets, solvency ratio
How much capital a bank or insurer holds relative to its risks, which decides how much loss it can absorb.
Banks must hold capital above minimum levels relative to their risk-weighted assets, and insurers must meet solvency requirements. The minimums are set by regulators and change over time. A fast-growing lender needs more capital, which can mean issuing new shares.
Learn more in these lessons
- Analysing banks and lendersHow do you analyse a bank or a lending company?
- Analysing insurance companiesHow do you analyse an insurance company?
- Case study: a lender in crisis (Yes Bank, 2018-2020)What can investors learn from the Yes Bank crisis?
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