What is capital adequacy

Capital adequacy is the measure of sufficient capital. All banks and financial institutions are required by law to have sufficient capital adequacy, to ensure that they are compliant with the rules and regulations of their regulatory body.

Capital adequacy explained

Capital adequacy is simply the maintenance of sufficient capital to keep your bank or financial institution out of financial difficulty. Capital adequacy is maintained by the regulatory body in place within the jurisdiction where the business is established, along with the confidence to ensure that the institution is fully able to transact business.

Capital adequacy is the single number that is the ratio of a bank’s capital to its assets. There are two types of capital, the first being share capital, the second relating to preference shares and subordinated debt. The value of the company’s assets is measured in a number of ways.

The initial measure of capital adequacy is whether there are sufficient minimum capital requirements in place, as required by the relevant bank licensing body. This is a very important factor and can significantly affect an offshore bank license application. Minimum capital requirements play a large role in the type of bank license you will apply for, as well as the jurisdiction chosen to form your offshore bank.

Individuals and companies that wish to acquire a banking license in an offshore jurisdiction are advised to seek the assistance of a professional consultancy firm. Through the advice and guidance of experienced consultants, you can ensure that you complete the bank formation process in a professional and timely manner, as well as in compliance with the law.