Tier 1 capital
Regulatory capital requirements are designed to ensure that a bank maintains sufficient capital to absorb any losses it incurs while remaining able to pay creditors and depositors. The basic concept is that if a bank has enough of the right type of capital, determined by capital adequacy ratios, then it should be able to repay its deposits even if there is a run on the bank.
Different regulators count different instruments as capital. In the UK, the Financial Services Authority follows the framework of the Basel Accord which divides qualifying capital into three tiers.
Tier 1 is a bank's core capital and consists of equity, reserves and current year profits. The Basel Accord requires that at least 50% of a bank's capital must be Tier 1.
+ Tier 1 capital, Also known as core capital.
USA
A measure of a financial institution's capital adequacy. It is common stock plus preferred stock and retained earnings minus goodwill. It is used to determine a financial institution's ability to absorb losses.

Practical Law Dictionary. Glossary of UK, US and international legal terms. . 2010.

Look at other dictionaries:

  • Tier 1 capital — is the core measure of a bank s financial strength from a regulator s point of view. It is composed of core capital,[1] which consists primarily of common stock and disclosed reserves (or retained earnings),[2] but may also include non redeemable …   Wikipedia

  • Tier 2 capital — See Tier 1 capital. Tier 2 is a bank s supplementary capital and includes revaluation reserves, general provisions and some classes of subordinated debt. It is divided into lower and upper tiers: • Lower Tier 2 capital is relatively standard in… …   Law dictionary

  • Tier 2 capital — Tier 2 capital, or supplementary capital, include a number of important and legitimate constituents of a bank s capital base [1]. These forms of banking capital were largely standardized in the Basel I accord, issued by the Basel Committee on… …   Wikipedia

  • Tier 3 capital — See Tier 1 capital. Tier 3 includes a greater variety of subordinated debt than Tier 2 capital and can only be set against trading book risk and is limited to a proportion of the Tier 1 capital held. Practical Law Dictionary. Glossary of UK, US… …   Law dictionary

  • tier 1 capital — A regulatory definition of bank capital. Tier 1 capital consists of common shareholders equity, perpetual preferred shareholders equity with noncumulative dividends, retained earnings, and minority interests in the equity accounts of consolidated …   Financial and business terms

  • Tier 3 Capital — Tertiary capital held by banks to meet part of their market risks, that includes a greater variety of debt than tier 1 and tier 2 capitals. Tier 3 capital debts may include a greater number of subordinated issues, undisclosed reserves and general …   Investment dictionary

  • tier 2 capital — A regulatory definition of bank capital. Tier 2 capital consists of subordinated debt, intermediate term preferred stock, cumulative and long term preferred stock, and a portion of the bank s allowance for loan and lease losses. American Banker… …   Financial and business terms

  • Tier 2 Capital — A term used to describe the capital adequacy of a bank. Tier II capital is secondary bank capital that includes items such as undisclosed reserves, general loss reserves, subordinated term debt, and more. This is related to Tier 1 Capital …   Investment dictionary

  • Tier 1 Capital — A term used to describe the capital adequacy of a bank. Tier I capital is core capital, this includes equity capital and disclosed reserves. Equity capital includes instruments that can t be redeemed at the option of the holder …   Investment dictionary

  • Tier 1 Capital Ratio — A comparison between a banking firm s core equity capital and total risk weighted assets. A firm s core equity capital is known as its Tier 1 capital and is the measure of a bank s financial strength based on the sum of its equity capital and… …   Investment dictionary

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