Tier 1 Capital Ratio
Tier 1 capital (CET1 plus preferred stock) relative to risk-weighted assets.
Definition
The Tier 1 capital ratio includes both CET1 capital and additional Tier 1 instruments like perpetual preferred stock and certain trust preferred securities. It represents the bank's core capital available to absorb losses without the bank needing to cease operations.
Formula
Tier 1 Ratio = Tier 1 Capital / Risk-Weighted Assets × 100
Why It Matters
Tier 1 capital is the primary safety net for depositors and creditors. Regulators use it to assess whether a bank can continue operating through economic downturns without government intervention.