Definition of capital adequacy ratio

Measure of the financial strength of a bank, expressed as a ratio of its capital to its assets. The Bank for International Settlements' Basel committee for international banking supervision has drawn up global standards for capital adequacy and also established criteria for the classification of loans in terms of risk. The Basel committee's target capital adequacy ratios - how much capital a bank should set aside as a proportion of risky assets - are called Basel ratios, or sometimes BIS ratios or just capital ratios.