Well capitalized: Well capitalized is the top of the five regulatory capital categories, and it is the status a bank needs in order to operate without restrictions.
Where it comes from
Under prompt corrective action a bank is well capitalized when it holds a total risk based capital ratio of at least 10%, a tier 1 risk based ratio of at least 8%, a common equity tier 1 ratio of at least 6.5% and a leverage ratio of at least 5%, and is not subject to a capital directive. A bank that elects the community bank leverage ratio and stays above 9% is deemed well capitalized without the risk based tests.
How to read it
The category is a gate rather than a grade. Falling out of it restricts brokered deposits, raises deposit insurance assessments and triggers supervisory action, so banks manage to sit comfortably above the line rather than near it.
The common mistake. Reading well capitalized as strong. It is a floor that almost every bank in the country clears with room to spare, so it tells you a bank is not in trouble rather than that it is doing well.
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, Tier 1 capital, Community bank leverage ratio, Risk-weighted assets, Brokered deposits.
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