Part I The Elements of Bank Financial Supervision, 6 The Bank Capital Calculation—Basel III
- Regulation of banks — Basel 3 — Tier 1 capital — Tier 2 capital
6.01 The Basel III definition of capital is much simplified. Tier 1 may consist of common equity tier 1 and some non-equity (‘additional tier 1’). Tier 2 capital is a single class of deferred debt, and tier 3 is abolished. 6.02 Common equity tier 1 capital means: 6.03 One of the major policy choices made by Basel was to create strong incentives for banks to raise capital in the form of homogenized shares. The rules disallow shares which differ in any way from others from counting as tier 1, to the extent that it is only begrudgingly accepted that non-voting...