Tier One Capital

A bank's tier one capital comprises equity, disclosed reserves and retained earnings. Under capital adequacy standards set for commercial banks by the Bank for International Settlements (BIS) at least half of the 8 percent of capital required to be set against risk-weighted assets must be tier one or core capital. Supplementary capital, or tier two, constitutes the rest. This includes undisclosed reserves, general provisions against loan losses, subordinated term debt and hybrid capital instruments with the characteristics of debt and equity.