Capital Adequacy

Capital adequacy is achieved when a bank’s capital ratio meets or exceeds the minimum capital ratio, which under the Basel Accords is 8% of risk weighted assets and can be satisfied with Tier 1, Tier 2, and Tier 3 capital. Tier 1 capital has to account for at least 4% of risk-weighted assets; the remainder can be satisfied through Tier 2 and, in the case of market risk capital, Tier 3 capital. National banking regulators can deviate from these minimum capital adequacy ratios.