Capital Adequacy Requirements

Definition ∞ Capital adequacy requirements are regulatory mandates that stipulate the minimum amount of capital financial institutions must hold to cover potential losses. These requirements ensure financial stability and protect depositors and creditors from institutional failures. They typically involve a ratio of capital to risk-weighted assets, providing a buffer against unforeseen economic downturns or operational missteps. Adherence to these standards is critical for maintaining market confidence.
Context ∞ For financial institutions dealing with digital assets, the application of capital adequacy requirements is a significant regulatory discussion. The volatility and novel risk profiles associated with cryptocurrencies present challenges in determining appropriate capital buffers. Regulators are working to establish clear guidelines that address these unique risks, aiming to integrate digital asset activities safely within the broader financial system.