Risk-Adjusted Capital Ratio

Definition of 'Risk-Adjusted Capital Ratio'

A measure of a financial institutions that compares total adjusted capital (TAC) to the institutions risk-weighted assets. There are many variations of risk-adjusted capital ratios, depending on how the analyst defines capital. Risk-adjusted capital ratios are used to assess the capital adequacy of a financial institution. Analyzing these ratios can help determine whether a bank has enough capital to withstand a downturn in the economy.

Investopedia explains 'Risk-Adjusted Capital Ratio'

For instance, Standard and Poor's calculates adjusted common equity by taking common shareholder's equity, and adding minority interest-equity and subtracting items such as dividends, revaluation reserves, goodwill, tax loss carry forwards, interest-only strips and other adjustments. Then, preferred stock and general reserves are added to this adjusted common equity to get their total adjusted capital.

comments powered by Disqus
Hot Definitions
  1. Marginal Analysis

  2. Treasury Inflation Protected Securities - TIPS

  3. Gilt-Edged Switching

  4. Master Limited Partnership - MLP

  5. Class Action

  6. Retail Sales

Trading Center