The highest quality of bank capital, mainly ordinary shares and retained earnings. Basel III sets the largest minimum on it.
Where you will meet it
Common equity tier 1 comes up in 6 learning outcome notes across the FRM syllabus.
A few of them:
Banks FRM Part I · Financial markets and products
“It set minimum common equity Tier 1 of 4.5% of risk-weighted assets, Tier 1 of 6% and total capital of 8%, plus a 2.5% capital conservation buffer in common equity and a countercyclical buffer.”
The Evolution of Stress Testing Counterparty Exposures FRM Part II · Credit risk measurement and management
“It can only be realised by default, it is hard to hedge, and Basel III removes DVA gains from CET1 capital.”
Integrated Risk Management FRM Part II · Operational risk and resilience
“Baseline minima are CET1 4.5 percent, Tier 1 6 percent and total capital 8 percent.”
Solvency, Liquidity, and Other Regulation After the Global Financial Crisis FRM Part II · Operational risk and resilience
“Tier 1 is Common Equity Tier 1 (CET1), meaning common shares plus retained earnings and reserves less deductions such as goodwill and deferred tax assets, plus Additional Tier 1 (AT1).”
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