risk-weighted assets

Risk-weighted assets (RWAs) are a bank's assets adjusted for their risk level to determine the amount of capital the bank should hold. Safer assets, like government bonds, have lower risk weights, requiring less capital, while riskier assets, like unsecured loans, have higher weights, requiring more safety reserves. This system helps ensure banks have sufficient buffers to cover potential losses, promoting financial stability. Essentially, RWAs provide a standardized way to measure the riskiness of a bank's assets and guide how much capital it needs to remain secure.