CAR (Capital Adequacy Ratio)

A measure of how much capital a bank holds relative to its risk-weighted assets, i.e. its buffer against unexpected losses.

Definition

Capital Adequacy Ratio – A measure of how much capital a bank holds relative to its risk-weighted assets, i.e. its buffer against unexpected losses. Regulators set a minimum; a higher CAR means more room to absorb losses before capital is impaired. Found In: Balance Sheet Formula:

CAR = (Tier 1 Capital + Tier 2 Capital) / Risk-Weighted Assets