{"id":1263,"date":"2026-05-07T05:00:06","date_gmt":"2026-05-07T05:00:06","guid":{"rendered":"https:\/\/banking.deepdigitalventures.com\/blog\/?p=1263"},"modified":"2026-05-07T05:00:06","modified_gmt":"2026-05-07T05:00:06","slug":"the-difference-between-cet1-tier-1-and-total-risk-based-capital","status":"publish","type":"post","link":"https:\/\/banking.deepdigitalventures.com\/blog\/the-difference-between-cet1-tier-1-and-total-risk-based-capital\/","title":{"rendered":"The Difference Between CET1, Tier 1, and Total Risk-Based Capital"},"content":{"rendered":"

Answer first:<\/strong> Common Equity Tier 1 (CET1) is the narrowest and usually highest-quality risk-based capital ratio. Tier 1 capital is broader because it adds qualifying additional Tier 1 instruments. Total risk-based capital is broader again because it adds qualifying Tier 2 capital. If you need one first-read ratio, start with CET1; if you need the full regulatory-capital stack, read all three together.<\/p>

Last reviewed: 2026-04-23. Regulatory schedules, thresholds, and enforcement guidance can change; verify current Call Reports and supervisory updates before citing this in a credit memo or investor document.<\/p>

Put plainly: CET1 = common equity, Tier 1 = CET1 + additional Tier 1, and total capital = Tier 1 + Tier 2. In this article, total capital means total risk-based capital unless stated otherwise. All three ratios use risk-weighted assets in the denominator, meaning assets are adjusted by regulatory risk weights before the ratio is calculated.<\/p>

The source trail starts with the Federal Financial Institutions Examination Council (FFIEC) Central Data Repository (CDR) and the reporting-form pages for FFIEC 051 and FFIEC 041 Call Reports, which are quarterly regulatory filings used by banks and bank supervisors.[1]<\/sup>[2]<\/sup>[3]<\/sup> Many community banks with domestic offices and total assets below $5 billion file FFIEC 051, while larger or more complex institutions may file FFIEC 041 or FFIEC 031.<\/p>

CET1 vs Tier 1 vs Total Capital<\/h2>

Schedule RC-R, the Call Report schedule for regulatory capital, puts the distinction into the regulatory form.[4]<\/sup> For a human first read, the more important point is the quality of the numerator: common equity first, then other Tier 1 capital, then Tier 2 support.<\/p>

Ratio<\/th>Plain-English numerator<\/th>Main question it answers<\/th>Main blind spot<\/th><\/tr><\/thead>
CET1 ratio<\/td>Common equity after regulatory adjustments and deductions<\/td>How much core common equity supports risk-weighted assets?<\/td>It does not include qualifying additional Tier 1 or Tier 2 instruments.<\/td><\/tr>
Tier 1 capital ratio<\/td>CET1 plus qualifying additional Tier 1 capital<\/td>How much capital is available to absorb losses while the bank keeps operating?<\/td>It can look better than CET1 when preferred stock or other qualifying additional Tier 1 capital is material.<\/td><\/tr>
Total capital ratio<\/td>Tier 1 capital plus qualifying Tier 2 capital<\/td>How much total regulatory capital supports risk-weighted assets?<\/td>It is broader than CET1 and can include Tier 2 capital, so it is not the same quality signal.<\/td><\/tr><\/tbody><\/table><\/figure>

What CET1 Capital Means<\/h2>

Common Equity Tier 1 is the narrowest of the three risk-based capital measures. Schedule RC-R starts with common stock plus related surplus, retained earnings, accumulated other comprehensive income (AOCI), and CET1 minority interest, then applies regulatory adjustments and deductions before arriving at CET1 capital.<\/p>

The deductions matter. Schedule RC-R includes specific treatment for goodwill, certain intangible assets, deferred tax assets, mortgage servicing assets, significant investments in unconsolidated financial institutions, and deductions that fall back to CET1 when there is not enough additional Tier 1 or Tier 2 capital to absorb them.<\/p>

For a bank analyst, CET1 is the cleanest first read because it is closest to common ownership and retained earnings. A bank with a strong total capital ratio but thin CET1 may still have less high-quality common equity than the headline number suggests.<\/p>

Bank Capital Ratio Thresholds<\/h2>

For Federal Deposit Insurance Corporation (FDIC)-supervised institutions, the Code of Federal Regulations (CFR) separates baseline minimums from the prompt corrective action (PCA) well-capitalized screen. The compact version is:<\/p>

Screen<\/th>CET1<\/th>Tier 1 capital<\/th>Total risk-based capital<\/th>Other condition<\/th><\/tr><\/thead>
Regulatory minimums[5]<\/sup><\/td>4.5%<\/td>6.0%<\/td>8.0%<\/td>Minimum capital rule; other buffers or requirements may also matter.<\/td><\/tr>
FDIC well-capitalized PCA screen[6]<\/sup><\/td>6.5%<\/td>8.0%<\/td>10.0%<\/td>Also requires a 5.0% leverage ratio and no covered agreement, order, capital directive, or PCA directive requiring a specific capital level.<\/td><\/tr><\/tbody><\/table><\/figure>

What Tier 1 Capital Adds<\/h2>

Tier 1 capital includes CET1 plus qualifying additional Tier 1 capital. In plain English, this is capital meant to absorb losses while the bank remains open and operating. That is what supervisors mean by going-concern capital. Additional Tier 1 can include qualifying noncumulative perpetual preferred stock and related surplus, along with other instruments that meet the regulatory criteria.<\/p>

That is why the spread between CET1 and Tier 1 is useful. If a bank reports a Tier 1 ratio materially above CET1, the next step is not to assume higher quality. The next step is to inspect the regulatory capital schedule and see whether the difference comes from additional Tier 1 instruments, minority interest, or another permitted regulatory component.<\/p>

The Call Report data can also create a data-quality trap. The FFIEC CDR download help says certain Schedule RC-R capital-ratio entries are stored as decimal fractions rather than percentages.[7]<\/sup> If a raw file shows 0.0950, read it as 9.50% before comparing it with a threshold.<\/p>