# What is a Tier 1 capital ratio?

## What is a Tier 1 capital ratio?

The tier 1 capital ratio is the ratio of a bank’s core tier 1 capital—that is, its equity capital and disclosed reserves—to its total risk-weighted assets. It is a key measure of a bank’s financial strength that has been adopted as part of the Basel III Accord on bank regulation.

## What is capital adequacy ratio with example?

For example, suppose bank ABC has \$10 million in tier-1 capital and \$5 million in tier-two capital. It has loans that have been weighted and calculated as \$50 million. The capital adequacy ratio of bank ABC is 30% (\$10 million + \$5 million) / \$50 million).

## How do you calculate tier capital?

Tier 1 Capital Explained The risk weighting is a percentage that’s applied to the corresponding loans to achieve the total risk-weighted assets. To calculate a bank’s tier 1 capital ratio, divide its tier 1 capital by its total risk-weighted assets.

## What is tier 2 capital example?

2 Elements of Tier II Capital: The elements of Tier II capital include undisclosed reserves, revaluation reserves, general provisions and loss reserves, hybrid capital instruments, subordinated debt and investment reserve account.

## Where can I find Tier 1 capital?

Tier 1 capital is a bank’s core capital and includes disclosed reserves—that appears on the bank’s financial statements—and equity capital. This money is the funds a bank uses to function on a regular basis and forms the basis of a financial institution’s strength.

## What is Tier 1 capital ratio?

Tier 1 Capital Ratio is the ratio of Tier 1 capital (capital that is available for banks on a going concern basis) as a proportion of bank’s risk-weighted assets.

## What is the difference between CET1 and Tier 1 capital?

Tier 1 Capital Requirements The Tier 1 capital ratio can be expressed as all of a bank’s core capital or as the Tier 1 common capital ratio or CET1 ratio. The CET1 ratio excludes preferred shares and non-controlling interests from the total Tier 1 capital amount; therefore, it is always less than or equal to the total capital ratio.

## What is the difference between Tier 1 common capital and leverage?

Related Terms The Tier 1 common capital ratio is a measurement of a bank’s core equity capital compared with its total risk-weighted assets. The tier 1 leverage ratio measures a bank’s core capital to its total assets. The ratio uses tier 1 capital to judge how leveraged a bank is in relation to its consolidated assets.

## Is Bank GHI’s Tier 1 capital ratio adequately capitalized?

Consequently, bank GHI’s tier 1 capital ratio is 6% (\$5 million/\$83.33 million), which is considered to be adequately capitalized because it is equal to the minimum tier 1 capital ratio. Investopedia requires writers to use primary sources to support their work.