A measure of the value of risk-weighted assets that is adjusted to a set of regulatory capital deductions corresponding to these assets (RWAs). Risk-weighted assets captures a bank’s or financial institution’s capital that relates its main risk exposures to the applicable risk weights for various categories of risk, stated as a percentage. Risk weights adjust the exposures to reflect a bank’s view of its relative degree of risk. This means, the greater the risk, the higher the applicable risk weight, and consequently, the higher the amount of resulting risk-weighted assets (RWAs). This capital measure reflects a bank’s assets adjusted for their respective sets of risk. Risk weightings are set in accordance with the Basel Capital Accord as implemented by a regulatory authority.

RWAs establish a connection between the minimum amount of capital that banks are required to maintain with the risk profile of the bank’s core business (i.e., lending activities and other risky assets). The higher the risk a bank takes, the more capital is required as a buffer for depositors. The capital impact of RWA is calculated by multiplying a bank’s risk-weighted assets by the minimum total risk-based capital ratio.

Regulatory adjustments constitute a set of adjustments that are made to a bank’s regulatory capital (e.g., CET-1 capital) to account for the effect of certain items not related to its core capital. These adjustments are made in order to produce more effective capital buffers. Regulatory adjustments generally take the form of deductions as well as recognition or derecognition of items in the calculation of a bank’s capital.

Regulatory adjustments include excess minority interest equity attributable to third-party owners, intangible assets, material holdings, and adjustments for prudential filters. Specific examples of regulatory adjustments are prudential valuation adjustments, goodwill net of deferred tax liabilities, gains on sale related to asset securitization, direct or indirect holding in own ordinary shares, etc.)

Other adjustments are cash flow hedge reserve, cumulative gains and losses due to changes in own credit risk on fair valued financial liabilities, defined benefit pension fund assets and liabilities, investments in own shares, or treasury stock, reciprocal cross holdings in the capital of banking, financial and insurance entities, investments in the capital of banking, financial and insurance entities, that are outside the scope of regulatory consolidation and where the bank does not own more than 10% of the issued common share capital of the entity, significant investments in capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, and threshold deductions.