Key financial ratio measuring a bank's Capital Adequacy or financial stability. As a general rule, the higher the ratio the more sound the bank. A bank with a high capital-to-asset ratio is protected against operating losses more than a bank with a lower ratio, although this depends on the relative risk of loss at each bank.
There are several standard measures of capital adequacy:
-Risk-adjusted capital ratio: Tier 1 Capital (common stock and qualifying preferred stock) divided by risk-adjusted assets.
-Total Capital to total assets ratio: tier 1 capital plus Tier 2 Capital (preferred stock, subordinated debt, and loan loss reserves) divided by total average assets.
-leverage ratio: tier 1 capital divided by total average assets, excluding goodwill.
-Total Risk-Adjusted Capital ratio: total Risk-Based Capital for certain loans and investments divided by risk-adjusted assets.
