What is Capital Adequecy Ratio ? What is its relevance?
From India, Kurnool

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A measure of a bank's capital. It is expressed as a percentage of a bank's risk weighted credit exposures.

Also known as "Capital to Risk Weighted Assets Ratio (CRAR)."

This ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world.

Two types of capital are measured: tier one capital, which can absorb losses without a bank being required to cease trading, and tier two capital, which can absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors.

Tier one capital-A term used to describe the capital adequacy of a bank. Tier I capital is core capital, this includes equity capital and disclosed reserves.

Tier Two capital-A term used to describe the capital adequacy of a bank. Tier II capital is secondary bank capital that includes items such as undisclosed reserves, general loss reserves, subordinated term debt, and more.

Any thing extra ?

Link-http://www.investopedia.com/terms/c/capitaladequacyratio.asp

From India, New Delhi

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