capital adequacy

capital adequacy
The principle upheld by banking regulators that banks should have, and be seen to have, a certain amount of capital relative to the amount of business which the banks undertake and the commercial risk associated with that business. UK banks authorised by the Financial Services Authority are required to have specified ratios of capital in comparison to the amount of their assets. If the assets fall in value, the amount of capital required to be maintained by the ratio should ensure that a bank has sufficient capital to absorb such losses and still repay its creditors and depositors.
Related links

Practical Law Dictionary. Glossary of UK, US and international legal terms. . 2010.

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