Risk-weighted assets are a tool for evaluating the solvency of a banking entity.
Among the various assets that a bank has, it is necessary to take into account the different risks they face.
The banks maintain the assets by weighted risk, taking into account said risks undertaken and proportionally establishing a capital maintenance.
In this sense, financial organizations weigh different risks related to their nature or operation within the financial markets.
To do this, the different percentages of capital in relation to assets by the entity are evaluated.
Relevance of assets by weighted risk
Periodically, supervisory bodies around the world, both national and multinational, are responsible for evaluating each minimum capital requirement.
In those cases in which they do not estimate their ratio sufficiently, they will urge regulations to increase said volume.
Based on the profile developed by a given entity, it must be subject to a particular level of risk-weighted assets.
In other words, those banks that undertake higher-risk investments or financial operations will be obliged to compensate for it with a greater volume of assets by maintaining more capital.
Ratio of risk-weighted assets
In the basic scheme, the higher the level of risk incurred, the bank will need a larger volume of capital. This point responds to the need to cover its estimated risk weighting.
The measurement of the risks related to each asset follows different aspects, among which the following stand out:
- Signaling of optima: As indicated above, risk-weighted assets serve as bank solvency indicators.
- Existence of guarantees or endorsements: The backing of assets through guarantors or resources as collateral is common in assets such as mortgage loans, for example.
- Independent adaptation: Although the economic authorities set minimum levels, each banking entity is analyzed or supervised independently and in detail.
- Binding official nature: Failure to meet minimum ratios or the assumption of a large volume of unweighted risk often leads to fines or penalties for banks.
Risk-weighted assets and institutional supervision
From the point of view of banking and financial regulations, this concept acquires special importance when establishing certain requirements or minimums demanded by different supervisory institutions.
In the case of the European Central Bank, the regulations require a lower limit of 8% of the capital formed by this type of asset.