Explain the reasoning in brief on the following statements: The fundamental objective behind Capital Adequacy Ratio (CAR) is to strengthen the soundness and stability of the banking system.

Capital Adequacy Ratio is the test of a financial institution's ability to meet its financial obligations. Capital adequacy mean that a bank and financial institution must have enough money to conduct its business. The fundamental objective behind the norms is to strengthen the soundness and stability of the banking system. The credit risk exposure attached to off-balance sheet items has to be first calculated by multiplying the face amount of each of the off-balance sheet items by the credit conversion factor. This will then have to be again multiplied by the relevant weightage. Banks are also required to disclose in their balance sheet the quantum of Tier I and Tier II capital fund, under disclosure norms. An annual return has to be submitted by each bank indicating capital funds, conversion of off balance sheet/non-funded exposures, calculation of risk-weighted assets, and calculations of capital to risk assets ratio).