Capital Ratio (Banking System)
Capital ratio is a measure of a bank’s financial strength and stability. It is calculated by dividing the bank’s total capital by its total assets. The higher the ratio, the more capital the bank has relative to its assets, and the more secure the bank is considered to be. Banks are required to maintain a certain level of capital ratio in order to remain solvent and to protect depositors’ funds.
History of Capital Ratio
The concept of capital ratio has been around since the early days of banking. In the 19th century, banks were required to maintain a certain level of capital in order to remain solvent. This was done to protect depositors’ funds and to ensure that the bank had enough money to cover its liabilities. Over time, the concept of capital ratio has evolved and become more sophisticated. Today, banks are required to maintain a certain level of capital ratio in order to remain solvent and to protect depositors’ funds.
Capital Ratio Comparison
| Bank | Total Capital | Total Assets | Capital Ratio |
|---|---|---|---|
| Bank A | $100 million | $500 million | 20% |
| Bank B | $200 million | $500 million | 40% |
Summary
Capital ratio is a measure of a bank’s financial strength and stability. It is calculated by dividing the bank’s total capital by its total assets. The higher the ratio, the more capital the bank has relative to its assets, and the more secure the bank is considered to be. Banks are required to maintain a certain level of capital ratio in order to remain solvent and to protect depositors’ funds. For more information about capital ratio, you can visit websites such as Investopedia, Bankrate, and the Federal Reserve Bank.
See Also
- Leverage Ratio
- Liquidity Ratio
- Asset Quality Ratio
- Return on Equity
- Interest Coverage Ratio
- Debt to Equity Ratio
- Equity Multiplier
- Capital Adequacy Ratio
- Tier 1 Capital Ratio
- Tier 2 Capital Ratio
