1. What is the Capital Adequacy Ratio?

The Capital Adequacy Ratio (CAR) is a measure of a bank's capital, expressed as a percentage of its risk-weighted credit exposures. It is used to protect depositors and promote the stability and efficiency of financial systems around the world.

2. How Does the Calculator Work?

The calculator uses the CAR formula:

Where:

• \( CET1 \) — Common Equity Tier 1 capital
• \( AT1 \) — Additional Tier 1 capital
• \( T2 \) — Tier 2 capital
• \( RWA \) — Risk-Weighted Assets

Explanation: The ratio measures a bank's financial strength by comparing its capital to its risk-weighted assets.

3. Importance of CAR Calculation

Details: CAR is a crucial measure for banks to ensure they can absorb a reasonable amount of loss and complies with statutory capital requirements. It helps maintain confidence in the financial system.

4. Using the Calculator

Tips: Enter all capital components and risk-weighted assets in the same currency unit. All values must be non-negative, with RWA greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is the minimum CAR requirement?
A: Most regulators require a minimum CAR of 8-10.5%, with additional capital conservation buffers.

Q2: What's the difference between CET1, AT1 and T2 capital?
A: CET1 is the highest quality capital (common shares), AT1 includes perpetual instruments, and T2 includes subordinated debt with original maturity of at least 5 years.

Q3: How are risk-weighted assets calculated?
A: RWA is calculated by assigning risk weights to different asset classes based on their perceived riskiness.

Q4: Why is CAR important for financial stability?
A: It ensures banks have enough capital to absorb losses during economic downturns, reducing the risk of bank failures.

Q5: How often should CAR be calculated?
A: Banks typically calculate CAR quarterly as part of their regulatory reporting requirements.