Work out capital adequacy ratio instantly with clear inputs, formula shown and shareable results.
Capital adequacy measures regulatory capital against risk weighted assets. Surplus capital above the minimum supports new lending in inverse proportion to the requirement, so at an 11.5% minimum each unit of spare capital supports nearly nine of risk assets.
Capital adequacy
CAR = (Tier 1 + Tier 2) / RWA; lending capacity = headroom / minimum ratio
Figures are estimates based on the inputs given. Bank charges, regulatory minima and market rates change and differ between institutions and jurisdictions. This is not financial advice — confirm with your bank or treasury policy.
Because a government bond and an unsecured loan pose very different loss risk, so a flat asset measure would misprice capital.
Subordinated debt and certain reserves — loss-absorbing but only on liquidation, so it is capped relative to Tier 1.