The capital requirement is a
bank regulation, which sets a framework on how
banks and
depository institutions must handle their
capital. The categorization of assets and capital is highly standardized so that it can be risk weighted. Internationally, the
Basel Committee on Banking Supervision housed at the
Bank for International Settlements influence each country's banking capital requirements. In 1988, the Committee decided to introduce a capital measurement system commonly referred to as the
Basel Capital Accords (
Basel Accord). This framework is now being replaced by a new and significantly more complex capital adequacy framework commonly known as
Basel II. While Basel II significantly alters the calculation of the risk weights, it leaves alone the calculation of the capital. The capital ratio is the percentage of a bank's capital to its risk-weighted
assets. Weights are defined by risk-sensitivity ratios whose calculation is dictated under the relevant Accord.
See more at Wikipedia.org...
The capacity of a financial institution's net worth to absorb potential adverse changes in the value of its assets without becoming insolvent.
Free Download Now!
