Risk Weighted Assets

This term was introduced in connection with the Basel I/II agreements. It describes the basis of a bank's assets that determine the amount of Tier 1 capital a bank requires. The idea of risk-weighted assets is a move away from having a static requirement for capital. Instead, it is based on the riskiness of a bank's assets. For example, loans that are secured by a letter of credit would be weighted a lot riskier than plain cash holdings.