Capital Adequacy Ratio (CAR)

Capital Adequacy Ratio (CAR)

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

Notes:

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.

See also: Capital, Tier 1 Capital, Tier 2 Capital