Bank Capital Ratios Explained. The amount of capital banks have matters as they take on far more leverage than the average steel-maker. Capital and credit exposures are both defined and measured in a specific manner which is explained in this article.
That explains the criticality of capital and leverage in the scheme of things. An international standard has been This article provides an explanation of the capital adequacy ratios applied by the Reserve Bank and a guide to their calculation. Capital Adequacy Ratio (CAR) is also known as Capital to Risk (Weighted) Assets Ratio (CRAR), is the ratio of a bank's capital to its risk.
Capital Adequacy Ratio (CAR) is the ratio of a bank's capital in relation to its risk-weighted assets and current liabilities.
The six largest US banks have Capital Ratios well above the regulatory requirements.
Ratios help these parties analyze a company's financial conditions and compare them with other similar companies. The European Union runs regular "stress tests" to check whether banks have enough of a capital buffer to cope with difficult economic/financial. Bank regulators enforce this ratio to.