Risk-Weighted Assets

The regulatory denominator produced by assigning exposures risk weights under standardized rules or approved internal models, rather than simply adding their accounting carrying amounts.

Why It Matters

Risk-weighted assets determine risk-based capital ratios and can affect banks' portfolio choices, model incentives, capital planning, and opportunities for regulatory arbitrage.

Reading the Measure

A working relation and an interpretive limit for corporate-finance use.

Working relation

Risk-based capital ratio = qualifying regulatory capital ÷ risk-weighted assets

Interpretive caution

Risk-weighted assets are neither total accounting assets nor a complete measure of economic risk. Results depend on the applicable Basel implementation, exposure class, mitigation rules, and whether standardized or internal-model approaches are used.

Accounting reference: Basel Committee: Basel Framework