Capital Ratios

A capital ratio is the ratio of a bank's capital to its risk adjusted assets. Most developed countries abide by the capital adequacy rules of the Bank for International Settlements (BIS). Commercial banks are required to set aside capital equal to eight percent of assets judged to be at risk. Some assets, such as loans to central banks, carry a zero percent risk weighting. At the other extreme pure corporate loans may be judged as being a 100 percent risk.

See also: Basel Accords