What is a good capital adequacy ratio for banks?

The minimum capital adequacy ratio for banks as per Basel III norms is 8%. 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. The CAR is decided by central banks and bank regulators to prevent commercial banks from taking excess leverage and becoming insolvent in the process. You can read about the Capital Adequacy Ratio (CAR) in the given link.

Further readings:

  1. Topic-Wise GS 3 Questions for UPSC Mains
  2. Basel III Norms – Regulations by Basel Committee on Banking Supervision

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