Risk-Based Capital Requirements

Risk-Based Capital Requirements are regulations that ensure financial institutions, like banks and insurance companies, hold enough capital to cover potential losses. This means they need to maintain a certain amount of money based on the risks they take, such as loans or investments. By linking capital requirements to risk levels, regulators aim to promote financial stability and protect depositors and policyholders, ensuring that institutions can absorb losses and continue operating during economic downturns or crises. This approach helps prevent financial failures that could impact the entire economy.