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COREP Guidance COREP Terms & Definitions CONTACT US What are Risk Weighted Assets?

What are Risk Weighted Assets?

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Risk Weighted Assets:

The Capital Requirement Regulations (CRR) defines how to measure – or ‘weigh’ - a firm’s assets in relation to their risk and therefore how to calculate the capital a firm needs to hold.

Safe assets, such as cash, are disregarded, whereas other assets, such as loans to other firms are considered riskier and therefore have a higher ‘weight’.

The greater number of riskier assets a firm has, the greater level of regulatory capital it has to hold.

As well as the risk-weighing of balance sheet assets, firms must also hold capital against risks related to off-balance sheet exposures. Some examples of off-balance sheet exposures could be loans and credit card commitments, which are also risk-weighted.