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DEFINITIONS

Tier 1 capital

Definition

Tier 1 capital is the core measure of a bank's financial strength from a regulator's point of view. It consists of the types of capital considered the most reliable and liquid, primarily equity. Examples of Tier 1 capital are common stock, preferred stock that is irredeemable and non-cumulative, and retained earnings.


The theoretical reason for holding capital is that it should provide protection against unexpected losses. Note that this is not the same as expected losses-- provisions and reserves are for expected losses.

Additional - what is the meaning of Tier 1 capital?


RELATED TERMS
Capital requirements
Tier 2 capital
RELATED CATEGORIES
Banking



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