Risk-Weighted Assets (RWA)
Total assets adjusted for their risk level.
Definition
Risk-weighted assets apply regulatory risk weights to different asset classes to reflect their relative riskiness. Cash and government bonds receive 0% weights, residential mortgages typically 50%, and commercial loans 100%. RWA is the denominator in risk-based capital ratios like CET1.
Why It Matters
RWA determines how much capital a bank must hold. Banks can improve capital ratios either by raising more capital or by shifting their asset mix toward lower-risk-weight categories. Proposed regulatory changes to risk weights can significantly impact bank capital requirements.