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Governance, Risk, Audit & Privacy · Intermediate

Risk Capacity

Maximum amount of risk an organization can absorb before its viability or objectives are seriously threatened.

Definition

Risk capacity is an objective limit based on financial resources, capital, liquidity, and regulatory constraints. Risk appetite must be set below capacity. Exceeding capacity can threaten the organization's survival.

Example

A small firm's risk capacity is limited by cash reserves that could cover only one month of outage losses.

Exam tip

Capacity is the objective ceiling; appetite is the chosen level below it.

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