Risk-weighted assets (RWAs) are a measure used to assess the risk associated with a bank's assets, adjusted for their risk levels. This calculation is crucial for determining the minimum capital requirements that financial institutions must maintain to cover potential losses, ensuring their solvency and stability in the financial system. By assigning different risk weights to various asset classes, regulators can gauge the risk exposure of banks more accurately and ensure they have sufficient capital buffers to withstand economic downturns.
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