Banking Exam Question - What is Weighted Average Risk Assign for Off-Balance Sheet Transaction? Explain

Introduction - Weighted average Risk for Assest & Liabilities

The capital adequacy ratio (CAR) is a measure of a bank's capital. It is communicated as a level of a bank's hazard weighted credit exposures.

Otherwise called capital-to-risk weighted assets ratio (CRAR), it is utilized to ensure contributors and advance the dependability and effectiveness of monetary frameworks around the globe. Two sorts of capital are measured: level one capital, which can retain misfortunes without a bank being required to stop exchanging, and level two capital, which can ingest misfortunes in case of a twisting up thus gives a lesser level of insurance to contributors.

Tier One and Tier Two Capital 

Tier one capital is the capital that is forever and effortlessly accessible to pad misfortunes endured by a bank without it being required to quit working. A decent case of a bank's level one capital is its conventional offer capital. 

Tier two capital is the one that pads misfortunes on the off chance that the bank is twisting up, so it gives a lesser level of security to contributors and leasers. It is utilized to ingest misfortunes if a bank loses all its level one capital.