Risk-Based Capital Framework

The Risk-Based Capital Framework is a regulatory approach that requires financial institutions, like banks and insurance companies, to hold enough capital to cover the risks they face. Instead of a one-size-fits-all requirement, this framework assesses the specific risks each institution has, such as credit, market, and operational risks. By linking capital requirements to risk levels, it helps ensure that institutions are financially stable enough to survive economic downturns and protect their customers, ultimately promoting a safer financial system.