Risk-Weighted Assets (RWA)
Corporate Credit Analysis glossary · Corporate Credit Analysis
Definition
Assets adjusted for credit risk under Basel; the denominator in regulatory capital ratios. Higher-risk exposures carry higher risk weights and consume more capital.
Risk-Weighted Assets (RWA) in plain English
Banks are legally required to keep a cushion of their own money (capital) so they can absorb losses without going bust. But not every loan is equally risky — lending to a rock-solid government is safer than lending to a shaky startup. Risk-Weighted Assets is a way of resizing each loan to reflect its danger: a super-safe loan might count as only a fraction of its dollar amount, while a risky one counts for its full value or more. Think of it like a backpack where you don't weigh things by size but by how likely they are to break — the fragile stuff 'weighs' more, so you're forced to pack extra padding (capital) around it.
Also called: RWA
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