Risk-adjusted capital ratio,
Definition of Risk-adjusted capital ratio:
Risk-adjusted capital ratio is used to gauge a financial institution's ability to continue functioning in the event of an economic downturn. It is calculated by dividing a financial institution's total adjusted capital by its risk-weighted assets (RWA).
A tool used to measure the ability of a financial institution to withstand a risk or recession, reflected by the size of its capital. In order words, the larger the capital of a business the higher its capital ratio, conversely, the more stable the business will be in the event of a recession.
A risk-adjusted capital ratio measures the resilience of a financial institution's balance sheet, with an emphasis on capital resources, to endure a given economic risk or recession. The greater the institution's capital, the higher its capital ratio, which should translate to a higher probability that the entity will remain stable in the event of a severe economic downturn.
Meaning of Risk-adjusted capital ratio & Risk-adjusted capital ratio Definition
