A capital ratio measures a bank's capital relative to its assets, usually risk-weighted assets. It indicates how much loss-absorbing equity the bank has before creditors are exposed.

Higher capital ratios make a bank more resilient, but they can also reduce returns on equity. The appropriate level is a policy choice that balances stability against the cost of funding.[1]

Regulators use capital ratios, stress tests, and leverage ratios to assess bank resilience. The Federal Reserve reports on bank capital and financial stability in its public assessments.[2]

Sources

  1. Admati, Anat; Hellwig, Martin. The Bankers' New Clothes: What's Wrong with Banking and What to Do about It. Princeton University Press. 2013. View source Accessed Nov 11, 2026.
  2. Board of Governors of the Federal Reserve System. Financial Stability Report. Federal Reserve. 2026. View source Accessed Nov 11, 2026.