--- title: "Tier 1 Capital: definition, formula, and thresholds" description: "Tier 1 capital is a bank's core, going-concern capital: its highest-quality common equity plus additional tier 1 instruments such as perpetual preferred stock. It is the capital that absorbs losses while the bank keeps operating, and it is the numerator of the tier 1 risk-based and leverage ratios." canonical_url: https://www.bankregreports.com/glossary/tier1-capital/ source: BankRegReports category: "Capital" units: "$" schedule: "Schedule RC-R" --- # Tier 1 Capital > Tier 1 capital is a bank's core, going-concern capital: its highest-quality common equity plus additional tier 1 instruments such as perpetual preferred stock. It is the capital that absorbs losses while the bank keeps operating, and it is the numerator of the tier 1 risk-based and leverage ratios. ## Formula ``` Tier 1 Capital = CET1 Capital + Additional Tier 1 (AT1) Capital ``` CET1 is common stock, retained earnings, and qualifying AOCI, less deductions. AT1 adds perpetual non-cumulative preferred stock and certain hybrids. The total is reported on Schedule RC-R and drives both the tier 1 risk-based ratio (vs. RWA) and the leverage ratio (vs. average assets). ## Why it matters Tier 1 is the capital regulators care about most for a going concern. It must be available to absorb losses without the bank failing. Its size relative to risk-weighted assets and to total assets determines whether a bank is well capitalized and free to pay dividends. ## How to read it Read the dollar figure through the ratios it feeds. A growing tier 1 base funded by retained earnings is healthy; one propped up by preferred stock (a wide CET1-to-tier-1 gap) is less flexible. The amount only means something against the bank's risk-weighted assets. ## Thresholds | Range | Reading | What it means | |---|---|---| | Ample vs. RWA & assets | Strong | Comfortably above well-capitalized minimums on both ratios. | | Adequate | Adequate | Tier 1 ratios within the normal range. | | Thin | Watch | Tier 1 approaching regulatory buffers. | | Deficient | Concern | Below minimums; triggers prompt corrective action. | ## Worked example A bank with $180 million of CET1 and $20 million of preferred stock has $200 million of tier 1 capital. Against $1.5 billion of risk-weighted assets that is a 13.3% tier 1 ratio; against $2.0 billion of average assets it is a 10.0% leverage ratio. ## Questions ### What is the difference between Tier 1 capital and CET1? CET1 is the highest-quality slice, common equity and retained earnings less deductions. Tier 1 adds Additional Tier 1 instruments such as perpetual preferred stock. Tier 1 is therefore equal to or larger than CET1. ### How is Tier 1 capital different from total equity? Total equity is the book accounting figure. Tier 1 capital starts from common equity but removes goodwill, most intangibles, and certain deferred tax assets, so it is a stricter, loss-absorbing measure. ## Sources - [FFIEC Call Report Schedule RC-R (Regulatory Capital)](https://www.ffiec.gov/sites/default/files/data/reporting-forms/FFIEC031_FFIEC041_202606_i.pdf) (PDF) - [12 CFR Part 217](https://www.ecfr.gov/current/title-12/part-217) ## Related metrics - [Common Equity Tier 1 Capital Ratio](https://www.bankregreports.com/glossary/cet1-ratio/): The CET1 ratio measures a bank's highest-quality capital (common stock and surplus, retained earnings and, for banks that have not opted out, accumulated other comprehensive income, less regulatory deductions) against its risk-weighted assets. It is the most-watched single capital indicator in US bank supervision after the 2013 Basel III reforms. - [Common Equity Tier 1 Capital](https://www.bankregreports.com/glossary/common-equity-tier1-capital/): Common equity tier 1 (CET1) capital is the highest-quality, most loss-absorbing capital a bank holds: common stock, retained earnings, and qualifying AOCI, less regulatory deductions. It is the dollar base behind the CET1 ratio, the single most-watched capital measure. - [Tier 1 Risk-Based Capital Ratio](https://www.bankregreports.com/glossary/tier1-rbc/): The Tier 1 Risk-Based Capital ratio measures a bank's Tier 1 capital (CET1 plus Additional Tier 1 instruments) against its risk-weighted assets. It is the broader of the two Tier-1 capital measures and is still the headline capital metric for most banking comparisons. - [Tier 1 Leverage Ratio](https://www.bankregreports.com/glossary/leverage-ratio/): The tier 1 leverage ratio is a bank's tier 1 capital divided by its average total consolidated assets. Unlike the risk-based ratios it gives every asset the same weight, so it caps how far a bank can stretch its balance sheet whatever the asset mix. - [Risk-Weighted Assets](https://www.bankregreports.com/glossary/risk-weighted-assets/): Risk-weighted assets (RWA) are a bank's assets and off-balance-sheet exposures, each multiplied by a risk weight set in the capital rules. RWA is the denominator of the CET1, tier 1 and total capital ratios, so it sets how much capital a bank must hold for the risks it takes. - [Total Equity Capital](https://www.bankregreports.com/glossary/total-equity/): Total equity capital is the bank's net worth on a book basis: common stock, surplus, retained earnings, and accumulated other comprehensive income (AOCI). It is the first cushion that absorbs losses before depositors or the FDIC are exposed. ## About this document This is the markdown twin of the page named in `canonical_url` above. Source filings are public record; the cleaning, normalization, cross-source linkage, and derived metrics are BankRegReports' own. Attribute with a link to the canonical URL. Markdown twins are published for editorial content only. Institution data pages do not have them. For data at scale use the API, which is documented at https://www.bankregreports.com/api/ and specified at https://www.bankregreports.com/openapi.json. It returns typed JSON with explicit units and periods, and one call replaces hundreds of page fetches. ## Sitemap - [Glossary](https://www.bankregreports.com/glossary/): every metric, with formula and thresholds - [Blog](https://www.bankregreports.com/blog/): analysis and explainers - [API documentation](https://www.bankregreports.com/api/): the programmatic way to get this data - [XML sitemap](https://www.bankregreports.com/sitemap.xml): the complete crawlable index