Discussion
In the context of business and banking, what is CRAR?
Answer: A
Correct answer: Capital to Risk Asset Ratio
CRAR is the Capital to Risk-weighted Assets Ratio - a bank’s capital as a proportion of its assets, each weighted by how risky it is:
\[ \text{CRAR} = \frac{\text{Tier I} + \text{Tier II capital}}{\text{Risk-weighted assets}} \]Weighting by risk is the point: a government security counts for little and an unsecured loan for a great deal. It is the central measure of a bank’s capacity to absorb losses.
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