Risk-Weighted Assets (RWA)
Bank assets weighted by risk to determine required capital reserves.
Detailed Description
Risk-Weighted Assets (RWA)
What are Risk-Weighted Assets (RWA)?
RWA are a measure used by banks to assess the risk level of their assets, quantifying them based on their riskiness.
Why is RWA important in banking?
RWA influences a bank's capital adequacy ratio (CAR), which is essential for evaluating financial health and managing risk.
How is RWA calculated?
RWA is calculated by classifying assets into categories, assigning risk weights, and summing the products of asset values and their respective weights.
What regulatory framework governs RWA?
The Basel Accords, particularly Basel III, establish the regulations for calculating RWA and set minimum capital requirements.
What are some examples of Risk-Weighted Assets?
Examples include residential mortgages, corporate loans, sovereign bonds, equity investments, and derivatives.