Total Capital Ratio
All regulatory capital as a percentage of risk-weighted assets.
Definition
The total capital ratio includes Tier 1 capital plus Tier 2 capital (subordinated debt, certain hybrid instruments, and portions of the allowance for loan losses). The minimum requirement under Basel III is 8%, but most U.S. banks maintain ratios well above this level.
Formula
Total Capital Ratio = (Tier 1 + Tier 2 Capital) / Risk-Weighted Assets × 100
Why It Matters
While CET1 gets more attention, the total capital ratio shows the full picture of a bank's loss-absorption capacity. Banks that rely heavily on Tier 2 capital may have lower-quality capital buffers.