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A bank's capital adequacy ratio compares regulatory capital with risk-weighted assets. Work through supplied capital totals, explain a quarterly movement, and reconcile the result to an approved bank workbook.
For banks capital adequacy ratios compare reported regulatory capital with risk-weighted assets. For the total risk-based measure, divide approved total capital by the matching risk-weighted asset total. The result explains capital relative to the reported risk base; it does not measure cash available for withdrawals.
In US bank reporting, the total risk-based capital ratio has a specific numerator and denominator. The Federal Reserve's capital ratio rules distinguish that measure from the common equity Tier 1, Tier 1 and leverage ratios.
Total risk-based capital ratio = Approved total regulatory capital / Reported risk-weighted assets
Express the quotient as a percentage.
This article uses supplied, approved figures under the standardized calculation basis. It does not assign risk weights, decide whether an instrument qualifies as capital, or establish a bank's regulatory status. If a bank reports another applicable basis, retain its approved numerator and denominator together rather than substituting one into this example.
Total capital includes more than the Tier 1 numerator. The Federal Reserve's capital component rules distinguish common equity Tier 1, additional Tier 1 and Tier 2, with applicable adjustments. Bring the resulting approved amounts into the comparison; do not rebuild eligibility from general ledger descriptions.
For the narrower numerator, use the Tier 1 risk-based capital ratio. For capital against a different asset or exposure base, use the bank leverage ratio.
Keep a record for each reporting entity and quarter. The minimum useful fields are the reporting date, entity identifier, calculation basis, currency, units, approved Tier 1 capital, approved Tier 2 capital, total capital and risk-weighted assets. Preserve the source schedule and approval version beside each amount.
Those labels prevent a common comparison error: placing holding-company capital over a subsidiary bank's risk-weighted assets. They also make restatements visible. If an earlier quarter has been revised, compare the current approved version with the current quarter and explain the revision separately.
Risk-weighted assets are a regulatory measurement, not the sum of loans or total accounting assets. An analyst can compare the supplied total and ask its owner for the movement explanation without recreating the underlying risk classifications. The capital-reporting team should own that explanation and its supporting schedules.
Consider an illustrative US commercial bank. Its approved capital workbook contains these amounts, all in USD, for the same legal entity and standardized basis. The capital amounts already reflect the adjustments required by its reporting process.
| Workbook row or calculation | June 30, 2026 (USD) | September 30, 2026 (USD) |
|---|---|---|
| Approved Tier 1 capital | 660,000,000 | 690,000,000 |
| Approved Tier 2 capital | 90,000,000 | 90,000,000 |
| Total capital: Tier 1 + Tier 2 | 750,000,000 | 780,000,000 |
| Reported risk-weighted assets | 5,000,000,000 | 5,400,000,000 |
| Division before percentage formatting | 750,000,000 / 5,000,000,000 | 780,000,000 / 5,400,000,000 |
| Total risk-based capital ratio | 15.00% | 14.44% |
Ratios are rounded to two decimal places; calculations retain full precision. In a comparison sheet with Tier 1 in column B, Tier 2 in C and risk-weighted assets in D, total capital in E is =SUM(B2:C2). The ratio in F is =E2/D2, formatted as a percentage and filled down.
Total capital rises by $30,000,000, or 4.00%: (780,000,000-750,000,000)/750,000,000. Risk-weighted assets rise by $400,000,000, or 8.00%: (5,400,000,000-5,000,000,000)/5,000,000,000. The denominator grows faster, so the ratio falls by 0.56 percentage points despite the higher capital balance.
A short bridge shows why the direction changed. First put the new capital over the old risk-weighted assets. Then replace the old denominator with the new one. This order allocates the combined movement consistently; it is an arithmetic explanation, not an attribution of business causes.
| Bridge step | Calculation | Ratio | Change from prior step |
|---|---|---|---|
| Starting position | 750,000,000 / 5,000,000,000 | 15.00% | — |
| Change capital only | 780,000,000 / 5,000,000,000 | 15.60% | +0.60 percentage points |
| Change risk-weighted assets | 780,000,000 / 5,400,000,000 | 14.44% | -1.16 percentage points |
| Net movement | Closing ratio minus starting ratio | -0.56 percentage points |
The variation in the middle row answers a useful question: if reported risk-weighted assets had stayed unchanged, the ratio would have increased. The actual denominator movement more than offsets that increase. Ask the capital-reporting owner whether it reflects growth, portfolio changes, revised inputs or another documented reason before explaining it to management.
First, add the approved capital components and tie them to reported total capital. Here, $690,000,000 plus $90,000,000 equals $780,000,000. Next, tie the risk-weighted asset row directly to the approved schedule for the same entity and date.
Finally, multiply the unrounded ratio by risk-weighted assets. The result must recover total capital: (780,000,000/5,400,000,000)*5,400,000,000 = 780,000,000. Do not use the displayed, rounded percentage for this identity. The bridge must also reconcile to the unrounded closing ratio minus the opening ratio.
Check whether a downloaded ratio is a decimal fraction or a displayed percentage. The FFIEC's Call Report download guidance warns that certain regulatory capital ratio entries are displayed as decimal fractions. Preserve the source format and apply percentage formatting deliberately.
The finance team can use this comparison to explain whether approved capital has kept pace with the reported risk base, frame questions about planned growth, and reconcile management reporting to the capital schedule. The responsible capital and regulatory teams interpret applicable requirements and restrictions.
Read the result beside funding and operating measures. The loan-to-deposit ratio addresses funding mix, while the bank debt-to-equity ratio depends on accounting liability definitions. Neither replaces a risk-based capital measure. Bank productivity ratios explain staffing and output, a separate question from capital adequacy.
Bring an approved capital-reporting file or Google Sheet with quarterly capital totals, risk-weighted assets and source labels. Covirage maps the columns; its tools compute the ratios, compare periods and check the supplied totals, while the external AI model explains the results with every figure traced to its rows. Create a free Covirage account in about a minute, then set up your business and bring a sample of your own data.
See Covirage for commercial banking for the wider reporting context.
Capital adequacy describes the broader assessment of capital against a bank's risks. A total risk-based capital ratio uses total regulatory capital, while a Tier 1 risk-based ratio uses only Tier 1 capital. Label the numerator explicitly before comparing reports or banks.
Yes. The ratio falls when risk-weighted assets grow faster than total capital. Compare the dollar movements as well as the percentages, and separate changes in reported exposures from changes in the approved measurement basis. A falling ratio alone does not establish the cause.
No. Regulatory capital is a defined measure of loss-absorbing funding after applicable adjustments. Cash is an asset available for payments. A capital ratio therefore answers a different question from a liquidity measure, even when the same bank reports both together.
Usually it cannot. Use the approved regulatory capital schedule and reported risk-weighted asset total, with their entity, date, units and calculation basis. Accounting equity and unweighted balance sheet assets are different measures and should not silently replace those inputs.