CET1 Capital Ratio
Core equity capital as a percentage of risk-weighted assets.
Definition
The Common Equity Tier 1 ratio measures a bank's highest-quality capital (common stock, retained earnings, AOCI) relative to its risk-weighted assets. It is the most stringent measure of bank capitalization under Basel III rules. U.S. systemically important banks are required to maintain CET1 ratios above stress capital buffer minimums.
Formula
CET1 Ratio = Common Equity Tier 1 Capital / Risk-Weighted Assets × 100
Why It Matters
The CET1 ratio determines a bank's ability to pay dividends, buy back stock, and absorb losses during economic stress. Regulators impose increasingly restrictive capital distribution limits as CET1 approaches minimum thresholds.