risk-based capital requirement

risk-based capital requirement

Evaluation of the capital adequacy of a financial institution according to the amount of risk attached to each type.One dollar in cash is much less risky than an unsecured promissory note for $1 from a con artist.Everything in between is a matter of degree.That is the premise that forms the basis of risk-based capital requirements.The Board of Governors of the Federal Reserve System sets the requirements for American financial institutions.This impacts the sizes and types of real estate loans financial institutions are willing to make.Internationally,the Basel II Accord provides guidelines for measuring risk when evaluating capital.