


Definition: 
The capital adequacy ratio is the central feature of the Basel Capital Accord. It is an analytical construct in which regulatory capital is the numerator and riskweighted assets is the denominator. A minimum ratio of regulatory capital to riskweighted assets is set to achieve the objective of securing over time soundlybased and consistent capital ratios for all international banks.

Context: 
From 1 January 2013 locally incorporated registered banks must comply with the following capital ratios, measured in relation to their riskweighted assets:
A Common Equity Tier 1 capital ratio of 4.5%; A Tier 1 capital ratio of 6%; A total capital of 8%.
From 1 January 2014 a bank that does not maintain a common equity buffer of 2.5% above these minimum ratios will face restrictions on the distributions it can make.

Source
Publication: 
IMF, 2004, Compilation Guide on Financial Soundness Indicators, IMF, Washington DC, Appendix VII, Glossary Reserve bank of New Zealand, n.d., Capital adequacy: Basel III, website.

Statistical
Theme: Financial statistics 
Created
on Thursday, August 26, 2004 
Last
updated on Thursday, April 4, 2013 












