Tier 1 capital

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.
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.

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