BANKING GENERAL KNOWLEDGE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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(Tier 1 Capital + Tier 2 capital + Tier 3 capital)/Risk weighted assets
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(Tier 1 Capital-Tier 2 capital)/Risk weighted assets
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(Tier 1 Capital + Tier 2 capital)/Risk weighted assets
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None of the above
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Detailed explanation-1: -What is the Capital Adequacy Ratio Formula? The CAR or the CRAR is computed by dividing the capital of the bank with aggregated risk-weighted assets for credit risk, operational risk, and market risk.
Detailed explanation-2: -The capital adequacy ratio is calculated by dividing a bank’s capital by its risk-weighted assets.
Detailed explanation-3: -Tier 1 capital is the primary funding source of the bank. Tier 1 capital consists of shareholders’ equity and retained earnings. Tier 2 capital includes revaluation reserves, hybrid capital instruments and subordinated term debt, general loan-loss reserves, and undisclosed reserves.
Detailed explanation-4: -What Is the Tier 1 Capital Ratio? The tier 1 capital ratio is the ratio of a bank’s core tier 1 capital-that is, its equity capital and disclosed reserves-to its total risk-weighted assets. It is a key measure of a bank’s financial strength that has been adopted as part of the Basel III Accord on bank regulation.