Tier 1 capital: Tier 1 capital is the loss absorbing core of a bank’s capital: common equity, retained earnings and qualifying preferred, less goodwill and other deductions.
How it is calculated
Calculated on Schedule RC-R. It starts from common equity tier 1, which is common stock, surplus and retained earnings less goodwill, other intangibles and certain deferred tax assets, then adds any qualifying additional tier 1 instruments.
Formula
Tier 1 capital = common equity tier 1 + additional tier 1 instruments
How to read it
Tier 1 is the capital that takes losses while the bank stays open, which is why every capital ratio that matters is built on it. Most banks hold essentially no additional tier 1, so at most banks tier 1 and common equity tier 1 are the same number.
The common mistake. Reading tier 1 as book equity. Most banks exclude accumulated other comprehensive income from it, so a securities loss that cuts book equity leaves tier 1 untouched.
Go deeper
- What is a good tier 1 leverage ratio?
- BankingLens pricing and what a subscription adds: percentile rank against the bank’s own FFIEC peer group, fourteen quarters of trend, and the flags an examiner reaches for first.
See also. Tier 1 leverage ratio, Risk-weighted assets, Community bank leverage ratio, Equity to assets, Well capitalized.
This page is generated by _tools/seo/build_glossary.mjs and carries no figure that was typed in. See our methodology and disclaimer. Definitions are general guidance, not regulatory or investment advice.