During a severe economic downturn, Zenith Mutual Bank experiences a sharp rise in borrower defaults on its corporate loan portfolio. The resulting write-downs threaten to entirely wipe out the bank's net worth, risking insolvency. Which microprudential regulatory standard is specifically designed to ensure that individual financial institutions maintain a sufficient cushion of loss-absorbing funds to withstand such asset devaluations?
The Liquidity Coverage Ratio (LCR), requiring banks to hold a minimum volume of high-quality liquid assets to survive a short-term cash-flow crisis
The Capital Adequacy Ratio (CAR), requiring banks to maintain a minimum proportion of their risk-weighted assets as equity and reserves
The Debt-to-Income (DTI) limit, applied macroprudentially to restrict high-risk lending to highly leveraged household borrowers
The reserve repo rate, set by the central bank to adjust the cost of borrowing in the interbank market
