What is the main purpose of capital adequacy ratios?

The main purpose of capital adequacy ratios is to ensure banks have enough capital to cover risks. These ratios are a critical component of a bank's financial health, as they measure the bank's capital in relation to its risk-weighted assets. By having sufficient capital, a bank can absorb potential losses, safeguard depositors’ funds, and maintain stability in the financial system.

Regulatory agencies require banks to meet specific capital adequacy ratios to promote financial stability and reduce the likelihood of bank insolvency. This requirement helps protect not only the banks themselves but also the economy at large, ensuring that banks remain capable of meeting their obligations even in times of stress.

In relation to the other options, while profitability, marketing, and operational efficiency are important for a bank’s success and management, they do not encapsulate the primary intent of capital adequacy ratios, which is focused on risk management and ensuring that banks maintain enough capital buffer to protect against unexpected financial challenges.