Capital Adequacy
Financial Dictionary — Finance & Capital Markets
Definition
A measure of the financial strength of a bank or securities firm, usually expressed as a ratio of its capital to its assets. For banks, there is now a worldwide capital adequacy standard, drawn up by the Basle Committee of the Bank for International Settlements. This ratio requires banks to have capital equal to 8 per cent of their assets.
Use cases, Example & Why it matters
Use cases
- Used in capital markets for disclosure, valuation, and investor communication.
- Used when interpreting securities, filings, and market indicators.
- Used when interpreting securities, filings, and market indicators.
Example
- Example: Investors reference **Capital Adequacy** when assessing risk/return and interpreting public disclosures.
Why it matters
- Why it matters: Improves transparency for investors and supports pricing, funding, and governance decisions.