Capital Components
Bank capital components include CET1, Additional Tier 1, and Tier 2 instruments, each with different eligibility and loss-absorption features.
A structured guide to Basel standards, CET1, Tier 1 and Tier 2 capital, risk-weighted assets, leverage, and bank capital ratios.
Regulatory bank capital rules define which resources can absorb bank losses, how risk exposures are measured, and how capital strength is reported. This section connects the Basel frameworks with capital components, risk-weighted assets, leverage, and the ratios used by supervisors and analysts.
The terms are related but not interchangeable. Accounting equity is not automatically regulatory capital, RWA are not total assets, and a risk-based capital ratio does not replace liquidity or leverage analysis.
The numerator can be CET1, Tier 1, or total regulatory capital. The denominator combines regulatory measures of credit, market, and operational risk. A separate leverage ratio uses Tier 1 capital over a broader, non-risk-weighted exposure measure.
| Topic | Use it to understand |
|---|---|
| Bank Capital Components | CET1, Tier 1, Tier 2, retained earnings, instrument eligibility, and loss-absorption hierarchy |
| Basel Accords and Supervisory Capital Rules | Basel I, Basel II, Basel III, regulatory capital, national implementation, and capital requirements |
| Risk-Weighted Assets and Capital Ratios | Risk weights, RWA, CET1 and Tier 1 ratios, leverage, and tangible common equity |
For a practical overview, start with Regulatory Capital, then read Risk-Weighted Assets and Capital Adequacy Ratio.
If a bank has $10 billion of Tier 1 capital and $100 billion of RWA, its Tier 1 capital ratio is 10%. If RWA rise to $125 billion while capital stays unchanged, the ratio falls to 8%. The decline came from the denominator, so the next step is to identify which exposures, methods, or rules increased RWA.
Use the consolidated Basel Framework for international standards, then confirm the enforceable national rule and the bank’s official regulatory disclosures.
This section provides general financial education, not investment, banking, legal, accounting, or regulatory advice. Capital requirements and classifications depend on current jurisdiction-specific rules and institution-specific facts.
Choose a subsection first. Deeper term pages live inside each subsection, which keeps large topic hubs readable.
Bank capital components include CET1, Additional Tier 1, and Tier 2 instruments, each with different eligibility and loss-absorption features.
Basel I, Basel II, Basel III, and the supervisory rules that define bank capital, risk-based requirements, buffers, leverage, and disclosure.
Risk weights, RWA, CET1 and Tier 1 capital ratios, leverage ratios, and tangible common equity for bank capital analysis.