capital adequacy

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The ability of a bank to meet the needs of its depositors and other creditors. It is the proportion of risk capital to risk-adjusted assets in a bank. Many Western banks are signatories to the Basle Convergence Accord, an agreement with the Bank for International Settlements that requires them to maintain 8% of their risk-adjusted assets as capital, and the Accord's successor, Basle Two. From January 2008 all financial institutions in the EU are required to apply the Basle Two rules.

Subjects: Financial Institutions and Services.

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