The measure of the sufficiency of a firm’s funds to meet its business and regulatory obligations; see Financial Resources and Financial Resources Requirement.
The ratio of a bank's capital to its assets. Regulators set minimum levels to protect both depositors and the economy.... more on: Capital adequacy
a) An internationally-adopted standard for the prudential supervision of banks, under which minimum levels of shareholders' equity (weighted according to the risks associated with different kinds of activity) must be maintained to support the investment and lending activities of banks. (See also Risk Weighting); b) In relation to public offer funds, a requirement under the SIS Legislation that the approved trustee maintain a prescribed level of capital in cases where the trustee intends to keep custody of the fund's assets (or, alternatively, that the custodian is appropriately capitalised in cases where an external custodian is used).
Standards for the minimum level of a bank's equity in relationship with its assets (related to different types of activity) set by BIS (Bank for International Settlements) for banks.
Under an accord of 1988 the Central Banks of the group of ten nations set out conversion capital adequacy standards for the commercial banks they regulate. This was formulated under the auspices of the Bank for international settlements. Most of the G-10 nations required banks to raise Capital Ratios gradually. The rules determined how much and what type of capital banks can raise in the financial markets and what type of loans they are allowed to make. See Tier One.
The Statutory requirement for a financial institution to have sufficient equity.
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.
Requirement for firms conducting investment business to have sufficient funds.
Firms conducting investment business are required to have sufficient funds of their own. The European Union' Capital Adequacy Directive, which sets minimum levels of capital for UK financial services companies, came into effect on 1st January 1996.
A quantitative and qualitative measure of an institution's level of equity versus the risk it incurs. This measurement shows a program's ability to absorb loan loss.
Determined by looking at the risk profile of an institution's assets, this requirement is laid down by regulators to comply with a specified capital requirement.
The capability of a financial institution's capital in absorbing probable credit- and market-related losses. Mandatory levels of capital adequacy are usually set by the country's central bank, in line with the Basel Committee recommendations.
The requirements laid down by regulators to comply with a specified capital requirement (i.e. reserve position), determined by looking at the risk profile of the institution's assets.
A requirement that the banks maintain equity capital sufficient to protect depositors from losses and support asset growth. Capital adequacy measures financial leverage; as leverage increases less capital is available to cover unexpected loss. Highly leveraged banks have more volatile earnings than banks with adequate capital, and are more closely monitored by banking regulations. See also CAMELS Rating.
In relations to banks, whereby a set minimal level of shareholders’ equity must be sustained to maintain the lending and investing activities of a bank.
