Page 14 - Banking Industry analysis (H)

RWA

Risk-weighted asset (also referred to as RWA) is a bank's
assets or off-balance-sheet exposures, weighted

according to risk. This sort of asset calculation is used in

determining the capital requirement or Capital

Adequacy Ratio (CAR) for a financial institution). (RWA)

Tier 1

The Tier 1 capital ratio is the ratio of a bank's core

equity capital to its total risk-weighted assets (RWA).

Risk-weighted assets are the total of all assets held by

the bank weighted by credit risk according to a formula

determined by the Regulator (usually the country's

central bank).

effectively doubled under new regulations. In addition,

for the banks restructuring, litigation and compliance

expenses were much higher. Moreover, one of the U.K.

government’s main weapons is to undertake periodic

'stress tests' which are designed to assess how effectively
the financial system as a whole, deals with economic and

financial shocks, such as, a housing market crash or a
sustained recession. (5) There are two types of banking

stress test:

1. “We run an annual stress test of the largest UK banks and

building societies. This informs policymaking by our
Financial Policy Committee and the Prudential Regulation

Authority (PRA).

2. Firms that are not part of this annual stress test must
carry out their own stress testing. The PRA publishes a