RWA
Risk-Weighted Assets
Definition
A measure used to determine the minimum amount of capital that a bank must hold based on the riskiness of its assets. Each asset class is assigned a risk weight reflecting the probability of loss, and the total RWA figure forms the denominator of capital ratio calculations. Higher-risk assets carry higher weights, requiring more capital.
Regulatory Context
The Basel III output floor will require that RWAs calculated using internal models cannot fall below 72.5% of those calculated using the standardised approach, phased in by 2030. This has significant implications for banks heavily reliant on internal models.