measure of a bank's financial strength, taking into account capital reserves for loans, investments, and certain other items off the balance sheet. In general, assets with higher credit risk require more capital in reserve than low-risk assets. The aim of risk-based capital is to: (1) encourage banks to keep a sufficient cushion of equity capital, including common stock, to support balance sheet assets; (2) include off-balance sheet items in the computation of capital adequacy; (3) eliminate disincentives to holding low-risk, liquid assets; and (4) set uniform international guidelines for bank capital adequacy in the group of ten countries.
-100% risk weight: cross-border loans to non-U.S. borrowers, commercial loans, consumer loans, derivative mortgage backed securities, industrial development bonds, stripped mortgage backed securities, joint ventures, and intangibles such as interest rate contracts, currency swaps, and other derivative financial instruments.
amount of required capital that the insurance company must maintain based on the inherent risks in the insurer's operations. These risks include asset depreciation risk, credit receivable risk, underwriting risk, and off-balance-sheet risk.
