capital adequacy
Capital adequacy refers to the amount of capital a bank or financial institution must hold to absorb potential losses and continue operating safely. It acts as a financial cushion, ensuring the institution can meet its obligations to depositors and creditors, even during difficult times. Regulators set minimum capital requirements based on the riskiness of the bank's assets. A strong capital position helps maintain stability in the financial system, protecting customers and contributing to economic confidence. Essentially, it's about ensuring banks have enough resources to withstand financial challenges.
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Capital adequacy refers to how much capital a bank or financial institution holds relative to its risks. It acts as a financial buffer, ensuring that the institution can absorb losses and continue operating, even in tough times. Regulators set minimum capital requirements to protect depositors and maintain confidence in the banking system. Essentially, it's a measure of a bank's financial health, showing that it has enough resources to cover potential losses from loans and investments, thereby safeguarding the economy and promoting stability in the financial system.