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Risk-weighted assets: Difference between revisions
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Amwelladmin (talk | contribs) (Created page with "{{anat|crr}} Compare with leverage ratio, a measure introduced in basel III to capture risks that the RWA measure wasn’t capturing.") |
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{{ | {{aai|crr|}}{{d|{{PAGENAME}}|/rɪsk ˈweɪtɪd ˈæsɛts /|n}} | ||
[[Risk-weighted assets]] are used to determine the minimum amount of [[Regulatory capital|capital]] that banks and other financial institutions must hold to guard against their risk of insolvency. It is based on a risk assessment for each type of asset the bank holds on its balance sheet. | |||
For example, a [[loan]] that is secured by a [[letter of credit]] is considered to be riskier and requires more capital than a [[loan]] that is secured with a [[mortgage]]. | |||
The [[global financial crisis]] was something of a come-to-Jehosophat moment for the Basel boxwallahs, as it turned out not to be a very good measure of risk, being somewhat counter-cyclical. So they in [[Basel III]] they introduced the [[leverage ratio]] to capture risks that they decided the [[RWA]] measure wasn’t capturing. | |||
{{sa}} | |||
*[[Leverage ratio]] | |||
*[[Global financial crisis]] | |||
{{ref}} | |||