Tier 1 Capital
Core equity capital that absorbs losses without a bank ceasing operations.
Detailed Description
Tier 1 Capital
What is the primary component of Tier 1 Capital?
The primary component of Tier 1 Capital is common equity, which includes common stock and retained earnings.
Why is Tier 1 Capital important for banks?
Tier 1 Capital is important as it serves as a buffer against losses, ensuring financial stability and compliance with regulatory standards.
How is the Tier 1 Capital Ratio calculated?
The Tier 1 Capital Ratio is calculated by dividing Tier 1 Capital by risk-weighted assets.
What distinguishes Tier 1 Capital from Tier 2 Capital?
Tier 1 Capital is the most secure form of capital for absorbing losses, while Tier 2 Capital includes less reliable instruments like subordinated debt.
What are the regulatory requirements for Tier 1 Capital under Basel III?
Under Basel III, banks are required to maintain a minimum Tier 1 Capital ratio of 4% of their risk-weighted assets.