Risk-weighted asset is a bank's assets weighted according to credit risk. Some assets, such as debentures, are assigned a higher risk than others, such as cash or government securities/bonds. Since different types of assets have different risk profiles, weighing assets based on the level of risk associated with them primarily adjusts for assets that are less risky by allowing banks to "discount" lower-risk assets.
This sort of asset calculation is used in determining the capital requirement or Capital Adequacy Ratio (CAR) for a financial institution, and is regulated by the Local Central Banks or other National financial regulators. The specifics of CAR calculation vary from country to country, but general approaches tend to be similar for countries that apply the Basel Accords. In the most basic application, government debt is allowed a 0% "risk weighting" - that is, they are subtracted from total assets for purposes of calculating the CAR.
This sort of asset calculation is used in determining the capital requirement or Capital Adequacy Ratio (CAR) for a financial institution, and is regulated by the Local Central Banks or other National financial regulators. The specifics of CAR calculation vary from country to country, but general approaches tend to be similar for countries that apply the Basel Accords. In the most basic application, government debt is allowed a 0% "risk weighting" - that is, they are subtracted from total assets for purposes of calculating the CAR.
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