Capital Adequacy Ratio Calculator

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✖Tier One Capital represents the highest quality and most reliable form of capital available to absorb losses without the bank being required to cease trading.ⓘ Tier One Capital [T1C]			+10% -10%
✖Tier Two Capital is a component of a bank's regulatory capital that provides additional loss-absorbing capacity beyond Tier 1 capital.ⓘ Tier Two Capital [T2C]			+10% -10%
✖Risk Weighted Asset represent the total assets of a financial institution adjusted for the risk associated with each asset, reflecting the likelihood of default or loss.ⓘ Risk Weighted Asset [RWA]			+10% -10%

✖Capital Adequacy Ratiois a regulatory requirement established by banking authorities to ensure that banks maintain a sufficient level of capital relative to the riskiness of their assets.ⓘ Capital Adequacy Ratio [CAR]

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Capital Adequacy Ratio Solution

STEP 0: Pre-Calculation Summary

Formula Used

Capital Adequacy Ratio = (Tier One Capital+Tier Two Capital)/Risk Weighted Asset
CAR = (T1C+T2C)/RWA
This formula uses 4 Variables

Variables Used

Capital Adequacy Ratio - Capital Adequacy Ratiois a regulatory requirement established by banking authorities to ensure that banks maintain a sufficient level of capital relative to the riskiness of their assets.
Tier One Capital - Tier One Capital represents the highest quality and most reliable form of capital available to absorb losses without the bank being required to cease trading.
Tier Two Capital - Tier Two Capital is a component of a bank's regulatory capital that provides additional loss-absorbing capacity beyond Tier 1 capital.
Risk Weighted Asset - Risk Weighted Asset represent the total assets of a financial institution adjusted for the risk associated with each asset, reflecting the likelihood of default or loss.

STEP 1: Convert Input(s) to Base Unit

Tier One Capital: 2000 --> No Conversion Required
Tier Two Capital: 1600 --> No Conversion Required
Risk Weighted Asset: 450 --> No Conversion Required

STEP 2: Evaluate Formula

Substituting Input Values in Formula

CAR = (T1C+T2C)/RWA --> (2000+1600)/450

Evaluating ... ...

CAR = 8

STEP 3: Convert Result to Output's Unit

8 --> No Conversion Required

FINAL ANSWER

8 <-- Capital Adequacy Ratio

(Calculation completed in 00.004 seconds)

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Created by Vishnu K

BMS College of Engineering (BMSCE), Bangalore

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Satyawati College (DU), New Delhi

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Capital Adequacy Ratio Formula

LaTeX Go

Capital Adequacy Ratio = (Tier One Capital+Tier Two Capital)/Risk Weighted Asset
CAR = (T1C+T2C)/RWA

What is Capital Adequacy Ratio?

The calculation of the Capital Adequacy Ratio typically involves dividing a bank's regulatory capital by its risk-weighted assets, expressed as a percentage. Regulatory capital is categorized into tiers based on their quality and permanence, with Tier 1 capital being the highest quality and most readily available to absorb losses. Risk-weighted assets are the bank's assets adjusted for credit, market, and operational risk, with higher-risk assets assigned higher risk weights.
The Capital Adequacy Ratio is a critical measure of a bank's financial strength and stability. A higher ratio indicates that the bank has a greater cushion of capital to absorb potential losses and is better able to withstand adverse economic conditions or unexpected losses. Regulatory authorities typically set minimum capital adequacy requirements that banks must meet to ensure financial stability and protect depositors and creditors.

How to Calculate Capital Adequacy Ratio?

Capital Adequacy Ratio calculator uses Capital Adequacy Ratio = (Tier One Capital+Tier Two Capital)/Risk Weighted Asset to calculate the Capital Adequacy Ratio, The Capital Adequacy Ratio formula is defined as a key financial metric used to measure a bank's capital adequacy and its ability to absorb potential losses arising from its lending and investment activities. Capital Adequacy Ratio is denoted by CAR symbol.

How to calculate Capital Adequacy Ratio using this online calculator? To use this online calculator for Capital Adequacy Ratio, enter Tier One Capital (T1C), Tier Two Capital (T2C) & Risk Weighted Asset (RWA) and hit the calculate button. Here is how the Capital Adequacy Ratio calculation can be explained with given input values -> 7.777778 = (2000+1600)/450.

FAQ

What is Capital Adequacy Ratio?

The Capital Adequacy Ratio formula is defined as a key financial metric used to measure a bank's capital adequacy and its ability to absorb potential losses arising from its lending and investment activities and is represented as CAR = (T1C+T2C)/RWA or Capital Adequacy Ratio = (Tier One Capital+Tier Two Capital)/Risk Weighted Asset. Tier One Capital represents the highest quality and most reliable form of capital available to absorb losses without the bank being required to cease trading, Tier Two Capital is a component of a bank's regulatory capital that provides additional loss-absorbing capacity beyond Tier 1 capital & Risk Weighted Asset represent the total assets of a financial institution adjusted for the risk associated with each asset, reflecting the likelihood of default or loss.

How to calculate Capital Adequacy Ratio?

The Capital Adequacy Ratio formula is defined as a key financial metric used to measure a bank's capital adequacy and its ability to absorb potential losses arising from its lending and investment activities is calculated using Capital Adequacy Ratio = (Tier One Capital+Tier Two Capital)/Risk Weighted Asset. To calculate Capital Adequacy Ratio, you need Tier One Capital (T1C), Tier Two Capital (T2C) & Risk Weighted Asset (RWA). With our tool, you need to enter the respective value for Tier One Capital, Tier Two Capital & Risk Weighted Asset and hit the calculate button. You can also select the units (if any) for Input(s) and the Output as well.

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