Capital Adequacy

Measure of the financial soundness of a bank, usually calculated as a ratio of its capital to its assets. Capital adequacy rules are designed to ensure that there is sufficient capital to absorb likely losses. It was agreed at the Basel I Accord in 1988 that the minimum ratio of capital to risk-adjusted assets for international banks should be 8 per cent.

See also: BIS, Basel Accords, Basel Committee, Capital Ratios