A layer of capital/ equity capital (for a bank or financial institution) that consists of common equity, minority interests, eligible noncumulative preferred stock, and the fixed rate cumulative preferred stock sold to the treasury, less goodwill and other necessary adjustments.

Tier-1 equity measures a bank’s financial strength from a regulatory standpoint. It is primarily made up of its equity capital and disclosed reserves. It constitutes an entity’s called-up share capital and eligible reserves plus non-controlling equity interests, less intangible assets and other deductions (other regulatory deductions) relating to the excess of expected loss over regulatory impairment allowance and securitization positions as determined by a regulatory authority.

In other words, it is an entity’s ordinary or common shareholder’s equity, excluding all hybrids.

By composition, a core tier-1 equity consists of: paid-in capital, retained earnings, surplus reserve, general risk reserve, undistributed profits, accumulated other comprehensive income (AOCI), capital reserve as well as all relevant regulatory adjustments (e.g., prudential valuation adjustments, goodwill net of deferred tax liabilities, gains on sale related to asset securitization, direct or indirect holding in own ordinary shares, etc.)

It is also known as a core capital or a core tier-1 capital.