Capital adequacy ratio formula
CAR measures a bank's regulatory capital against its risk-weighted assets.
The formula
Capital adequacy ratio = (Tier 1 capital + Tier 2 capital) ÷ risk-weighted assets. This is the same as the total capital ratio. Basel III requires at least 8%, with at least 6% from Tier 1 and 4.5% from CET1.
Step by step
- Add up regulatory capital: CET1 + Additional Tier 1 + Tier 2, after deductions.
- Add up risk-weighted assets: credit RWA + market RWA + operational RWA.
- Divide capital by RWA.
- Compare with the minimum and buffers that apply to you.
Worked example
Capital: CET1 120, AT1 20, Tier 2 30 = 170. RWA = 1,000. CAR = 170 ÷ 1,000 = 17.0%, compared with an 8% minimum (10.5% with the conservation buffer).
Try it
Use the capital adequacy ratio calculator to compute all four ratios at once.
Frequently asked questions
What does a capital adequacy ratio of 15% mean?
Regulatory capital equals 15% of risk-weighted assets, comfortably above the 8% Basel III minimum, though requirements with buffers are higher.
Is CAR the same as the total capital ratio?
Yes, in Basel III terms: (Tier 1 + Tier 2) divided by RWA.
Can the ratio be too high?
A high ratio means a stronger buffer against losses, but very high capital can reduce returns on equity. Banks balance safety, regulation and returns.
Sources: Basel Committee on Banking Supervision, Basel Framework (RBC20 calculation of minimum risk-based capital requirements; LEV20 leverage ratio) and Basel III international regulatory framework for banks, bis.org; BIS FSI summary of the capital conservation and countercyclical buffers. Checked 10 October 2026.