What is the CET1 ratio?
CET1 stands for common equity tier 1. It is a bank's core capital: mainly common stock and retained earnings, minus deductions set by the rules.[S2] The ratio compares that capital with the bank's risk-weighted assets.[S1]
How is the CET1 ratio worked out?
It is CET1 capital divided by risk-weighted assets, times 100.[S1] Each asset counts at a set percentage. Under the standardized approach, loans to the US government count at 0% and most loans to companies at 100%.[S6]
The Federal Reserve's Regulation Q sets a minimum CET1 ratio of 4.5%.[S1] Row notes name the approach used, where the page stores it.
What do the capital buffers do?
Buffers are extra CET1 capital above the minimum. If a bank's ratios dip into them, the rule limits its dividends, share buybacks and executive bonuses.[S3][S4]
For large banks, part of the buffer comes from the Fed's supervisory stress test.[S5]
Where do banks report the CET1 ratio?
Banking groups with $50 billion or more in assets must publish it each quarter; a subsidiary may skip the detailed tables when its parent publishes them. They show CET1 capital, its parts and risk-weighted assets.[S7][S8][S12]
Holding companies with $3 billion or more also report quarterly to the Fed on form FR Y-9C.[S9]
What does the CET1 ratio leave out?
- Other regulatory capital, such as additional tier 1 and tier 2 instruments. Those count in the tier 1 and total capital ratios.[S2][S1]
- Total assets without risk weights. The leverage ratio divides tier 1 capital by average total assets instead.[S1]
- Differences within a risk weight: most loans to companies share the same 100% weight.[S6]