Capital Adequacy Ratio (CAR)
The Capital Adequacy Ratio (CAR) is a measure of a bank’s capital. It is expressed as a percentage of a bank’s risk-weighted credit exposures. It is used to protect depositors and promote the stability and efficiency of financial systems around the world. The CAR is calculated by dividing a bank’s eligible capital by its risk-weighted assets. The higher the CAR, the more capital a bank has to cover its losses.
History of Capital Adequacy Ratio (CAR)
The Capital Adequacy Ratio (CAR) was first introduced in 1988 by the Basel Committee on Banking Supervision (BCBS). The BCBS is an international body that sets standards for banking regulation and supervision. The CAR was designed to ensure that banks have enough capital to cover their losses in the event of a financial crisis. The CAR is calculated by dividing a bank’s eligible capital by its risk-weighted assets. Banks are required to maintain a minimum CAR of 8%.
Comparison of Capital Adequacy Ratios
| Bank | CAR (%) |
|---|---|
| Bank A | 12.5 |
| Bank B | 10.2 |
| Bank C | 9.7 |
Summary
The Capital Adequacy Ratio (CAR) is a measure of a bank’s capital. It is expressed as a percentage of a bank’s risk-weighted credit exposures. It is used to protect depositors and promote the stability and efficiency of financial systems around the world. Banks are required to maintain a minimum CAR of 8%. For more information about the CAR, you can visit the websites of the Basel Committee on Banking Supervision (BCBS) and the International Monetary Fund (IMF).
See Also
- Risk-Weighted Assets
- Basel Accords
- Leverage Ratio
- Liquidity Ratio
- Tier 1 Capital
- Tier 2 Capital
- Credit Risk
- Market Risk
- Operational Risk
- Basel Committee on Banking Supervision (BCBS)
