Capital Adequacy Ratio Calculator

Measure your bank's financial strength by calculating Tier 1 and Tier 2 capital adequacy

Capital Information

Tier 1 Capital ($)

Tier 2 Capital ($)

Risk-Weighted Assets ($)

Capital Adequacy Results

Total CAR

-

%

(Tier 1 + Tier 2) ÷ Risk-Weighted Assets

Tier 1 CAR

-

%

Tier 1 Capital ÷ Risk-Weighted Assets

Tier 2 CAR

-

%

Tier 2 Capital ÷ Risk-Weighted Assets

Total Capital

-

$

Tier 1 + Tier 2 Capital

Calculate to see regulatory compliance status

Regulatory Requirements

Requirement	Basel III Standard	Your Bank	Status
Minimum Total CAR	8%	-	-
Minimum Tier 1 CAR	6%	-	-
Common Equity Tier 1	4.5%	-	-

About Capital Adequacy Ratio

The Capital Adequacy Ratio (CAR) measures a bank's capital in relation to its risk-weighted assets. It ensures banks can absorb reasonable losses and protects depositors.

Tier 1 Capital

• Core capital including common stock

• Disclosed reserves and retained earnings

• Must be at least 6% of risk-weighted assets

• More liquid and reliable than Tier 2

Tier 2 Capital

• Supplementary capital including revaluation reserves

• Hybrid instruments and subordinated debt

• Must not exceed 100% of Tier 1 capital

• Less reliable than Tier 1 capital

This calculator provides estimates based on Basel III standards. Actual requirements may vary by jurisdiction. Print Results

The Capital Adequacy Ratio (CAR) Calculator is a critical tool for banks and financial institutions to measure their financial strength and ability to absorb losses. Regulators (like the Basel Committee) use CAR to ensure banks have enough capital to cover risks.

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How the Capital Adequacy Ratio Calculator Works

CAR Formula (Basel III Standard)

$$\text{CAR}=\frac{\text{Tier 1 Capital + Tier 2 Capital}}{\text{Risk-Weighted Assets (RWA)}}\times 100\mathrm{\%}$$

Key Components

1. Tier 1 Capital (Core Capital)

   • Common equity + disclosed reserves

   • Must be ≥ 6% of RWA (Basel III requirement)

2. Tier 2 Capital (Supplementary Capital)

   • Subordinated debt, hybrid instruments

   • Must be ≤ Tier 1 Capital

3. Risk-Weighted Assets (RWA)

   • Loans/assets adjusted for risk (e.g., mortgages = lower risk than unsecured loans)

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Example Calculation

Component	Amount ($M)
Tier 1 Capital	120
Tier 2 Capital	30
Risk-Weighted Assets (RWA)	1,000
CAR	$\frac{120+30}{1,000}\times 100\mathrm{\%}=\ast \ast 15\mathrm{\%}\ast \ast$

Regulatory Minimums:

• Basel III: 10.5% (8.5% Tier 1 + 2% Tier 2)

• US/Europe: Typically 10-12% for systemically important banks

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Why CAR Matters

✅ Regulatory Compliance – Avoid penalties or shutdowns.
✅ Investor Confidence – High CAR = stronger financial health.
✅ Risk Management – Ensures banks can withstand loan defaults.

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Best CAR Calculators

1. Basel Committee’s RWA Tools (Official regulatory guidance)

2. Investopedia CAR Calculator (Educational)

3. BankRegData (US Bank Capital Ratios) (Real-world benchmarking)

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How to Improve CAR

✔ Increase Tier 1 Capital – Retain earnings, issue new shares.
✔ Reduce RWA – Shift to lower-risk loans (e.g., secured mortgages).
✔ Limit Dividend Payouts – Preserve capital instead of shareholder payouts.

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CAR vs. Other Bank Ratios

Ratio	What It Measures	Regulatory Minimum
CAR	Total capital vs. risk	10.5% (Basel III)
Tier 1 Ratio	Core capital vs. risk	8.5% (Basel III)
Leverage Ratio	Tier 1 capital ÷ total assets	3-5% (US/Europe)

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Limitations

⚠ Risk Weightings Are Subjective – Banks may underestimate RWA.
⚠ Ignores Liquidity Risk – CAR doesn’t measure short-term cash flow.