Capital Adequacy Ratio (CAR)

The Capital Adequacy Ratio (CAR) is a financial metric used to assess a bank's strength. It measures the bank's capital as a percentage of its risk-weighted assets. Essentially, it shows how much cushion a bank has to absorb potential losses. A higher CAR indicates that a bank is better equipped to handle financial difficulties, thus promoting stability in the banking system. Regulators often set minimum CAR requirements to ensure that banks can meet their obligations and protect depositors' interests.