Tier 1 Capital
A bank's core equity capital—common stock and retained earnings—used as the primary measure of financial strength under Basel III.
What is Tier 1 Capital?
Tier 1 capital is the highest-quality capital layer in the Basel III regulatory framework, representing a bank's core financial strength and its primary capacity to absorb losses without ceasing operations. It consists primarily of Common Equity Tier 1 (CET1)—which includes common shares, retained earnings, and accumulated other comprehensive income—plus Additional Tier 1 (AT1) instruments such as perpetual subordinated securities (contingent convertibles or 'CoCos') that convert to equity or are written down under stress. Under Basel III, banks must maintain a minimum CET1 ratio of 4.5% of risk-weighted assets and a Tier 1 capital ratio of at least 6%, plus a 2.5% capital conservation buffer.
Example
Bank of America reported a CET1 ratio of 11.9% in Q4 2024, substantially above the regulatory minimum of 4.5%. This means that for every $100 of risk-weighted assets (loans, securities, and off-balance-sheet commitments weighted by riskiness), the bank holds $11.90 of the highest-quality loss-absorbing capital—providing a substantial buffer above the minimum required by regulators.