What is Tier 1 Capital Ratio?
Tier 1 Capital: This represents the highest quality capital a bank holds, consisting primarily of common equity Tier 1 capital. It includes the bank's common shares, retained earnings, and certain other instruments that can absorb losses without the bank being required to cease trading.
Risk-Weighted Assets: These are the bank's total assets adjusted for credit, market, and operational risk, based on regulatory risk weightings assigned to different asset classes.
The Tier 1 Capital Ratio measures the proportion of a bank's Tier 1 capital to its risk-weighted assets. It indicates the bank's capacity to absorb losses from unexpected events or economic downturns while still maintaining a safe level of capital relative to its risk profile.
Regulatory authorities set minimum Tier 1 Capital Ratio requirements to ensure that banks maintain sufficient capital to support their operations and protect depositors and creditors. These requirements are typically established as a percentage of risk-weighted assets.
How to Calculate Tier 1 Capital Ratio?
Tier 1 Capital Ratio calculator uses Tier One Capital Ratio = Tier One Capital/Risk Weighted Asset to calculate the Tier One Capital Ratio, The Tier 1 Capital Ratio formula is defined as a measure of a bank's financial strength and stability, particularly its ability to absorb losses while maintaining its operations. Tier One Capital Ratio is denoted by T1CR symbol.
How to calculate Tier 1 Capital Ratio using this online calculator? To use this online calculator for Tier 1 Capital Ratio, enter Tier One Capital (T1C) & Risk Weighted Asset (RWA) and hit the calculate button. Here is how the Tier 1 Capital Ratio calculation can be explained with given input values -> 4.444444 = 2000/450.