What does 'RWA' stand for in banking?

“What does ‘RWA’ stand for in banking?” RWA means Risk-Weighted Assets. It is a regulatory measure that adjusts a bank’s assets according to their estimated credit and other risks.

A government bond may receive a lower risk weight than a risky corporate loan, even if both have the same face value. Banks multiply exposures by assigned risk weights and add the results to calculate total RWA.

The figure is central to the Basel capital framework. Banks compare regulatory capital with RWA to produce capital-adequacy ratios, so a bank with riskier assets generally needs more capital to support them.

A common mix-up is confusing RWA with Return on Assets, or ROA. ROA is a profitability ratio; RWA is a risk-adjusted exposure measure used mainly for prudential regulation and capital requirements.