What is total capital ratio?

Total Capital Ratio means (i) before proposed dividends, the ratio of total capital to total risk-weighted assets and (ii) after proposed dividends, the ratio of total capital after dividends to total risk weighted assets.

What is tier1 and tier2 capital?

Tier 1 capital is the primary funding source of the bank. Tier 1 capital consists of shareholders’ equity and retained earnings. Tier 2 capital includes revaluation reserves, hybrid capital instruments and subordinated term debt, general loan-loss reserves, and undisclosed reserves.

How is RWA calculated?

Banks calculate risk-weighted assets by multiplying the exposure amount by the relevant risk weight for the type of loan or asset. A bank repeats this calculation for all of its loans and assets, and adds them together to calculate total credit risk-weighted assets.

What makes up a bank’s capital adequacy ratio?

The capital adequacy ratio (CAR) is defined as a measurement of a bank’s available capital expressed as a percentage of a bank’s risk-weighted credit exposures. Bank capital is the difference between a bank’s assets and its liabilities, and it represents the net worth of the bank or its equity value to investors.

What should be the Tier 1 capital ratio of a bank?

Consequently, its tier 1 capital ratio is 10% ($5 million/$50 million), and it is considered to be well-capitalized compared to the minimum requirement. On the other hand, bank DEF has retained earnings of $600,000 and stockholders’ equity of $400,000. Thus, its tier 1 capital is $1 million. Bank DEF has risk-weighted assets of $25 million.

What’s the minimum leverage ratio for a bank?

The Fed issued supplementary leverage ratio minimums of 3% for banks with over $250 billion in consolidated total assets and 5% for banks with over $700 billion, including SIFIs such as JP Morgan Chase, Citigroup, Bank of America, Wells Fargo, Goldman Sachs, Morgan Stanley, and Bank of New York Mellon. 7 

What does total capital mean for a community bank?

For a qualifying community banking organization (as defined in § 217.12 of this chapter) that is subject to the community bank leverage ratio framework (as defined in § 217.12 of this chapter), total capital means the bank’s Tier 1 capital (as defined in § 217.2 of this chapter and calculated in accordance with § 217.12 (b) of this chapter).

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