RWA

RWA, or Risk-Weighted Assets, are a way for banks to measure the riskiness of their loans and assets. Each asset—such as loans, mortgages, or investments—is assigned a risk weight based on its likelihood of default. Riskier assets carry higher weights, meaning they require banks to hold more capital as a safety buffer. This system helps regulators ensure banks have enough funds to cover potential losses, promoting financial stability. In essence, RWA translates complex risks into a standardized measure, guiding banks in managing their capital reserves appropriately.