Capital Adequacy Ratio Calculator
A bank can look profitable right up to the quarter its loan book turns, which is why regulators judge it on capital, not earnings. This capital adequacy ratio calculator takes Tier 1 capital, Tier 2 capital and risk-weighted assets, then reports the total CAR and the Tier 1 ratio, checks both against the Basel III minimums, and puts a currency figure on any shortfall.
Uses the Basel III headline minimums (8% total, 6% Tier 1). National regulators often add buffers and surcharges, so treat this as a screening check, not a compliance determination.
Quick Answer
Key takeaways
- CAR is a solvency cushion, not a profitability score: it states how much of its own money a bank holds against each $100 of risk-adjusted assets.
- The split matters as much as the total. Tier 1 must reach 6% on its own, so Tier 2 can supply at most 2 points of the 8% minimum, no matter how much subordinated debt a bank issues.
- Passing 8% is not the same as being comfortable. Between 8% and 10.5% a bank is inside the conservation buffer, where payouts to shareholders get progressively restricted.
- Quick Answer
- How to use the capital adequacy ratio calculator
- The CAR formula and the Basel III minimums it is checked against
- Worked example: a $100 billion risk-weighted balance sheet
- Tier 1 versus Tier 2: going-concern and gone-concern capital
- Why the denominator is risk-weighted, not total assets
- Capital is not deposits, and not the cash in the vault
- What happens below the minimum
- What competing calculators miss
- Frequently Asked Questions
- Add This Calculator to Your Website
- References
How to use the capital adequacy ratio calculator
Take the three figures from the bank's regulatory reporting, usually the Pillar 3 disclosure or the capital section of its annual report, and keep them in one currency unit: billions throughout, or full amounts throughout. Enter Tier 1 capital, Tier 2 capital (zero if none is reported), and total risk-weighted assets, then press Calculate.
The results lead with total capital, then the two ratios. Underneath, the verdict lines do the regulatory reading for you: whether the total clears 8%, whether it also clears the 10.5% buffer level, whether Tier 1 clears 6%, and, when either test fails, the exact currency shortfall the bank would need to raise. One extra line appears when Tier 2 contributes more than 2 percentage points, flagging that the structure leans on supplementary capital harder than the minimum framework assumes. This page sits in the wider capital cluster for a reason: it tests a bank against rules, while the leverage view on the capital gearing ratio calculator tests a company against its own debt load, and the two should never be confused.
The CAR formula and the Basel III minimums it is checked against
The formula is one line long. Everything regulatory sits in the thresholds it is compared with, which come from the Basel III framework published by the Bank for International Settlements Basel Framework.
| Basel III requirement | Minimum | What it is |
|---|---|---|
| Common Equity Tier 1 (CET1) | 4.5% of RWA | The purest loss-absorbing capital inside Tier 1: common shares and retained earnings. |
| Total Tier 1 | 6% of RWA | CET1 plus additional Tier 1 instruments. This calculator checks this line directly. |
| Total capital (Tier 1 + Tier 2) | 8% of RWA | The headline CAR minimum. This calculator checks this line directly. |
| Capital conservation buffer | Plus 2.5% of RWA | An additional CET1 cushion, taking the effective expectation to 10.5%. Breaching it restricts distributions rather than breaching the minimum itself. |
| G-SIB surcharge | Plus 1% to 3.5% | Extra capital for global systemically important banks, set bank by bank. Not modelled here, which is why results are a screening check. |
The framework text behind these figures is the Basel Committee's Basel III: A global regulatory framework for more resilient banks and banking systems, with the conservation buffer and countercyclical elements refined in later Basel publications. National supervisors then implement the framework in local law, and several run higher domestic minimums than the Basel floor.
Worked example: a $100 billion risk-weighted balance sheet
The pre-filled bank is comfortably capitalised, and walking its numbers shows what each verdict line is doing.
| Figure | Amount | Check |
|---|---|---|
| Tier 1 capital | $10,000,000,000 | |
| Tier 2 capital | $2,000,000,000 | Contributes exactly 2.00 points, at the allowance limit, so no Tier 2 note appears |
| Total capital | $12,000,000,000 | |
| Risk-weighted assets | $100,000,000,000 | |
| Capital adequacy ratio | 12.00% | Pass Above 10.5%, so clear of the buffer zone |
| Tier 1 ratio | 10.00% | Pass Above the 6% minimum |
Now stress it in your head. Cut Tier 1 to $5 billion and the total falls to 7.00%: the tool reports a total shortfall of $1 billion to reach 8%, and a Tier 1 shortfall of $1 billion to reach 6%. Raise Tier 2 to $4 billion instead, keeping Tier 1 at $10 billion, and the total rises to 14.00% but the Tier 2 note appears, because Tier 2 now supplies 4 points of a ratio whose minimum only lets it count for 2. Same formula, three different regulatory stories, which is why the verdict lines matter more than the headline percentage. A close cousin of this test, run on the narrower risk-based definitions some jurisdictions use, is the bank risk-based capital calculator.
Tier 1 versus Tier 2: going-concern and gone-concern capital
Regulators grade capital by one question: does it absorb losses while the bank is still open, or only in the wreckage afterwards? Tier 1 is going-concern capital. Common equity, retained earnings and disclosed reserves sit at the bottom of the claims pile, take losses first, and never have to be repaid. Additional Tier 1 instruments, such as contingent convertible bonds, join it because their terms let them convert or write down under stress.
Tier 2 is gone-concern capital: subordinated debt with at least five years to maturity, certain revaluation reserves and qualifying hybrid instruments. It protects depositors and senior creditors if the bank fails, but its holders expect repayment in normal times, so the framework caps how much of the minimum it can fill. That cap is the reason this calculator reports the Tier 1 ratio separately instead of letting a big Tier 2 pile flatter the headline. For firms that are not banks, the nearest relative of this quality question is the regulatory net capital test on the excess net capital calculator, which asks whether a broker-dealer holds more than its own rule demands.
Why the denominator is risk-weighted, not total assets
A bank with $100 billion of government bonds and a bank with $100 billion of speculative property loans do not carry the same risk, and a ratio built on raw total assets would treat them as twins. Risk-weighting fixes that: each asset class is multiplied by a weight reflecting its danger, from 0% for cash and top-rated sovereign exposure up to 100% or more for risky lending, and the weighted sum becomes the denominator. The later Basel reforms, summarised by the Basel Committee's Basel III finalisation document (d424), tightened how banks may model those weights internally, after the crisis showed internal models drifting toward flattering answers.
The practical consequence for anyone using this page: two banks can report identical total assets and very different CARs, and the difference is information, not noise. It also means CAR can be improved from either side: raise capital, or shed risk-weighted assets. Watching which side a bank chooses tells you a lot about its strategy, and the profit engine that rebuilds capital organically is examined on the bank profit calculator.
Capital is not deposits, and not the cash in the vault
The most common misunderstanding in this topic deserves its own short section. Deposits are liabilities: money the bank owes its customers, repayable on demand or at term. Vault cash and reserves are assets: things the bank holds. Capital is neither. It is the owners' stake: funds shareholders put in, plus profits the bank kept instead of paying out, plus the qualifying instruments described above. When a loan defaults, the loss lands on capital first. Depositors are only exposed once capital is exhausted, which is the entire reason a minimum capital ratio exists.
What happens below the minimum
A bank under 8% total or 6% Tier 1 is in breach, and supervisors act: a formal capital restoration plan, limits on dividends, bonuses and buybacks, and closer oversight until the ratio is repaired. Between 8% and 10.5% the bank is legal but inside the conservation buffer, where the share of profits it may distribute shrinks on a sliding scale the closer it gets to 8%. The shortfall figure this calculator returns is the fastest way to size the problem: it is (minimum minus current ratio) times risk-weighted assets, in the currency you entered.
What competing calculators miss
The working tools for this query mostly stop at the bare percentage, and the long explainers mostly offer no tool at all.
Miss 1: a ratio with no verdict. A CAR of 9% sounds safe until you learn it sits inside the conservation buffer with distributions restricted. This page checks the total against both 8% and 10.5%, and Tier 1 against 6%, on every run.
Miss 2: no shortfall in money. Percentages do not raise capital; currency amounts do. When a test fails, this calculator converts the gap into the amount to be raised, for total capital and for Tier 1 separately.
Miss 3: the Tier 2 cap left out. Several tools let Tier 2 fill the whole ratio without comment. Here, Tier 2 contributing more than 2 points triggers an explicit note, matching how the minimum is actually constructed.
Frequently Asked Questions
Add Tier 1 and Tier 2 capital, divide by risk-weighted assets, and multiply by 100. With $10 billion of Tier 1, $2 billion of Tier 2 and $100 billion of risk-weighted assets, total capital is $12 billion and the CAR is 12.00%. The Tier 1 ratio uses the same denominator with Tier 1 alone in the numerator: 10.00% here.
Legally, at least 8% total with Tier 1 at least 6% under Basel III. Comfortably, above 10.5%, which adds the 2.5% conservation buffer and keeps the bank clear of distribution restrictions. Large systemic banks are expected to hold more again because of surcharges. A ratio far above peers is safe but can signal capital that is not being put to work.
8% total capital to risk-weighted assets, built from at least 4.5% Common Equity Tier 1 and at least 6% total Tier 1. On top sits a 2.5% capital conservation buffer, making 10.5% the level a bank needs to operate without payout restrictions, before any systemic surcharges its supervisor adds.
Tier 1 is going-concern capital: common equity, retained earnings, disclosed reserves and qualifying convertible instruments that absorb losses while the bank keeps operating. Tier 2 is gone-concern capital: subordinated debt, revaluation reserves and hybrids that absorb losses mainly in a failure or wind-up. The quality gap is why Tier 1 has its own 6% floor.
No. Deposits are liabilities the bank owes to customers. Capital is the bank's own stake: shareholder funds, retained profits and qualifying capital instruments. Losses are absorbed by capital first, which is precisely why regulators set a minimum for it.
A bank's assets after each class is multiplied by a regulatory risk weight: near zero for cash and top-rated sovereign bonds, high for unsecured and speculative lending. The weighted total measures how dangerous the balance sheet is, so two banks with equal total assets can have very different risk-weighted assets and very different capital ratios.
No. Tier 1 must reach 6% of risk-weighted assets by itself, so Tier 2 can account for at most 2 percentage points of the 8% minimum. A bank stuffed with subordinated debt and thin on equity fails the Tier 1 test even if its total looks adequate, and this calculator flags Tier 2 contributions above 2 points.
The bank is in breach of its minimum and supervisors intervene: a capital restoration plan is required, and dividends, bonuses and buybacks are typically restricted until the ratio is repaired. Between 8% and 10.5% the bank is inside the conservation buffer, where permitted distributions shrink on a sliding scale.
An extra cushion of 2.5% of risk-weighted assets, held in Common Equity Tier 1, that banks are expected to maintain above the 8% minimum in good times so it can be drawn on in stress. It is not a second minimum: dipping into it does not breach the rules, but it progressively restricts how much profit the bank may pay out.
Multiply the gap by risk-weighted assets: (8% minus the current CAR) times RWA for the total shortfall, and (6% minus the current Tier 1 ratio) times RWA for the Tier 1 shortfall. Enter the bank's figures and this calculator returns both amounts in currency automatically when either test fails.
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References
- Bank for International Settlements, Basel Framework: the consolidated Basel III standards, including the definition of capital and minimum capital requirements. Bank for International Settlements: Basel Framework. Accessed October 2026.
- Basel Committee on Banking Supervision, Basel III: A global regulatory framework for more resilient banks and banking systems (bcbs189): the source document for the 8% total, 6% Tier 1 and 4.5% CET1 minimums. BIS: Basel III Framework Document (bcbs189). Accessed October 2026.
- Basel Committee on Banking Supervision, Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools and related capital publications index (bcbs277 covers the Basel III leverage ratio framework and disclosure requirements). BIS: Basel III Leverage Ratio Framework (bcbs277). Accessed October 2026.
- Basel Committee on Banking Supervision, Basel III: Finalising post-crisis reforms (d424): the revised standardised approaches and output floor that govern how risk-weighted assets are calculated. BIS: Basel III Finalising Post-Crisis Reforms (d424). Accessed October 2026.