1) All banks excluding branches of foreign banks in Norway. Bank equity capital ratios before 1990 include all banks.
Source: Norges Bank and Finanstilsynet.
The equity capital ratio is a key measure of bank solvency, i.e. banks’ ability to withstand stresses and absorb losses. The chart above shows changes in Norwegian banks’ equity capital ratio from 1980 to the present. The equity ratio is calculated as a percentage of (non-risk-weighted) total assets.
Norwegian banks and other financial institutions are subject to international minimum capital standards (referred to as Basel II). These rules are intended to promote financial stability by ensuring the solvency of the financial system as a whole. Robust countercyclical capital buffers in individual institutions serve to prevent a problem from spreading to all or parts of the system.
The following minimum standards are currently in force (all three ratios are calculated as a percentage of risk-weighted total assets):
- Minimum common equity requirement of 2 per cent.
- Minimum Tier 1 capital requirement (common equity and hybrid capital) of 4 per cent.
- Minimum total capital ratio (Tier 1 capital plus Tier 2 capital) of 8 per cent.