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GLOSSARYTERMS AS A CREDIT DESK USES THEM

Risk-weighted assets

What are risk-weighted assets, and how do they set a bank's capital?

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BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

Risk-weighted assets are a bank's loans and other exposures each multiplied by a weight that reflects how likely it is to lose money on them: a loan secured on a house carries a lower weight than an unsecured loan to a company, and cash or government bonds carry little or none. A bank's capital requirement is set as a share of that total, not of its plain balance sheet, so two banks with the same assets can need very different capital. For a lending desk the weight is part of the price: a loan that uses more capital has to earn more to be worth writing.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

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