# Capital Adequacy Ratio

*Banking & Payments — Finicade finance glossary*

The capital adequacy ratio compares a bank's capital to its risk-weighted assets — the buffer available to absorb losses before depositors are hit. Risk weighting is the contested part: government bonds are weighted at or near zero, which is why banks loaded up on sovereign debt before the eurozone crisis, and why a simple leverage ratio was added as a backstop.

**Formula:** `CAR = Regulatory capital ÷ Risk-weighted assets`

**Also known as:** CAR, capital ratio, risk-weighted assets

**Related terms:** [Tier 1 Capital](https://finicade.com/glossary/tier-1-capital), [Basel Rules](https://finicade.com/glossary/basel-rules), [Bank Leverage](https://finicade.com/glossary/bank-leverage), [Commercial Bank](https://finicade.com/glossary/commercial-bank), [Stress Testing](https://finicade.com/glossary/stress-testing)

Source: https://finicade.com/glossary/capital-adequacy-ratio