Assets which are weighted for credit risk according to a formula used by the Reserve Bank (and other OECD central banks which conform to the BIS's capital adequacy guidelines). On and off-balance-sheet items are weighted for risk, with off-balance-sheet items converted to balance-sheet equivalents (using credit-conversion factors) before being allocated a risk weight. Risk weights are in five categories, from zero to 100 per cent. Those carrying a zero weight include notes and coins, gold matched by gold liabilities, balances with the Reserve Bank and commonwealth government securities with less than twelve months to maturity. Commonwealth government securities with more than twelve months to maturity carry a 10 per cent risk weighting, as do state government securities. Claims on other banks, Australian local governments and public-sector organisations, other than those with corporate status or which operate commercially, carry a 20 per cent risk weighting. Loans secured by a mortgage over residential property and with a loan-to-valuation of 80 per cent or less carry a 50 per cent risk weighting and loans to companies or individuals carry a 100 per cent risk weighting. See also: capital adequacy.
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