A bank's assets weighted according to credit risk, some assets, like debentures, are assigned a higher risk than others, such as cash. This type of asset calculation is used in determining the capital requirement for a financial institution, and is regulated by the Federal Reserve Board. In terms of the smallest amount of capital that is required within banks and other institutions, based on a percentage of the assets, weighted by risk.
Assets which are weighted for credit risk according to a formula used by the Reserve Bank. On and off-balance-sheet items are weighted for risk, with off-balance-sheet items converted to balance-sheet equivalents before being allocated a risk weight. Risk weights are in five categories, from zero to 100 per cent, those carrying a zero weight include notes and coins, gold matched by gold liabilities, balances with the Reserve Bank.
See Also: What are fixed Assets?
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