capital adequacy

capital adequacy definition - finance
A ratio that can indicate a bankÂ’s ability to maintain equity capital sufficient to pay depositors whenever they demand their money and still have enough funds to increase the bankÂ’s assets through additional lending. Banks list their capital adequacy ratios in their financial reports. It is stated in terms of equity capital as a percent of assets. Capital requirements imposed by regulators tend to be simple mechanical rules rather than applications of sophisticated risk models.

Webster's New World Finance and Investment Dictionary Copyright © 2003 by Wiley Publishing, Inc., Indianapolis, Indiana.
Used by arrangement with John Wiley & Sons, Inc.

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