The Capital Adequacy Ratio (CAR) is a financial metric used to assess a bank's ability to withstand financial distress. It measures the bank's capital in relation to its risk-weighted assets, ensuring that it has enough capital to cover potential losses. A higher CAR indicates a stronger financial position, which is crucial for maintaining stability in the banking system. Regulatory authorities, such as the Basel Committee on Banking Supervision, set minimum CAR requirements to promote financial stability. Banks must maintain a CAR above a certain threshold to ensure they can absorb losses and protect depositors, thereby reducing the risk of bank failures.