Capital adequacy

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1.

The system of regulating banks (and other financial institutions) by requiring them to maintain minimum acceptable levels of capital, adequate to absorb their potential credit losses and other trading losses.


2.

The current minimum amount of risk weighted capital that banks are required to maintain in proportion to the risk assets that they assume, normally used in connection with the requirements laid down internationally by the Bank for International Settlements (BIS) and monitored by domestic central banks.

Historically the BIS standard has been 8%.

Under Basel III this standard will be increased (strengthened) substantially - very roughly doubled - and its measurement will be refined.


See also