Regulatory capital is the amount of capital a bank or other financial institution (a regulated entity) has to hold, at all times, as required by its regulators. It is the sum of tier-1 capital (core capital), tier-2 capital (supplementary capital), and tier-3 capital (ancillary capital).
Broadly speaking, the regulatory capital of a bank, at a certain time, is the sum of (a) shareholders’ equity, (b) minority interests, and (c) subordinated indebtedness.
More specifically, regulatory capital consists of the following categories:
- (a) Tier-1 capital (going-concern capital), which comprises:
- (i) Common equity tier-1 capital (CET1);
- (ii) Additional tier-1 capital (AT1 capital); and
- (iii) Paid-up mutual equity interests issued by a mutually-owned authorized deposit taking institution above as specific level (as defined by regulatory authorities); and
- (b) Tier 2 capital (gone-concern capital).
- (c) Tier-3 capital (ancillary capital).
