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The Tier 1 risk-based capital ratio divides approved Tier 1 capital by reported risk-weighted assets. Follow a quarterly workbook example, separate numerator and denominator changes, and reconcile the result to its source schedules.
The Tier 1 risk-based capital ratio is approved Tier 1 capital divided by reported risk-weighted assets, expressed as a percentage. It measures a specific layer of regulatory capital against the bank's reported risk base. Use approved capital-reporting inputs so the comparison explains the submitted figures rather than inventing regulatory classifications.
Tier 1 risk-based capital ratio = Approved Tier 1 capital / Reported risk-weighted assets
Approved Tier 1 capital = Approved common equity Tier 1 + Approved additional Tier 1
For the standardized calculation, the Federal Reserve's capital ratio rule specifies Tier 1 capital divided by standardized total risk-weighted assets. This example uses that basis. Retain any other applicable reported basis as a separate comparison, with its own approved inputs.
The important word is approved. Common equity Tier 1 and additional Tier 1 have eligibility conditions, adjustments and deductions under the Federal Reserve's capital component rules. A finance analyst should use the amounts supplied by the bank's capital-reporting process, not classify instruments from their accounting names.
Do not add Tier 2 to this numerator. That belongs in the broader bank capital adequacy ratio when the stated measure is total risk-based capital. Do not replace risk-weighted assets with ordinary balance sheet assets; the bank leverage ratio owns that separate exposure-base question.
Use a row for each reporting entity and quarter, with these columns:
| Column | What to carry from the approved workbook |
|---|---|
| A | Reporting date |
| B | Common equity Tier 1 capital, after applicable adjustments |
| C | Additional Tier 1 capital, after applicable adjustments |
| D | Total risk-weighted assets on the stated calculation basis |
| E | Tier 1 capital, calculated from B + C and tied to the reported total |
| F | Tier 1 risk-based capital ratio |
Keep the entity, currency, units, calculation basis, source schedule and approval version with those columns. A separate source reference is useful when a workbook contains management estimates alongside approved regulatory figures. Do not allow the comparison to pick whichever row happens to have the latest date.
The following example already uses dollar amounts. If the source reports thousands, normalize all capital and denominator values together and retain the original units for the tie-out. Missing capital or risk-weighted assets should remain an exception for review, rather than becoming zero.
An illustrative US bank supplies these approved figures for the same reporting entity. The component rows already include the adjustments in its capital-reporting workbook; the example does not calculate eligibility or risk weights.
| Input or calculation | June 30, 2026 (USD) | September 30, 2026 (USD) |
|---|---|---|
| Approved common equity Tier 1 | 540,000,000 | 570,000,000 |
| Approved additional Tier 1 | 60,000,000 | 60,000,000 |
| Tier 1 capital: add component rows | 600,000,000 | 630,000,000 |
| Reported risk-weighted assets | 5,000,000,000 | 5,400,000,000 |
| Divide Tier 1 by risk-weighted assets | 600,000,000 / 5,000,000,000 | 630,000,000 / 5,400,000,000 |
| Tier 1 risk-based capital ratio | 12.00% | 11.67% |
With the columns above, the formula in E2 is:
=SUM(B2:C2)
The ratio in F2 is:
=E2/D2
Fill the formulas down and format F as a percentage. Display ratios to two decimal places but retain full precision in the cells. The June numerator is $540,000,000 plus $60,000,000, giving $600,000,000. September's corresponding addition gives $630,000,000.
Tier 1 capital has grown by $30,000,000, or 5.00%, while risk-weighted assets have grown by $400,000,000, or 8.00%. Those changes are calculated as closing minus opening, divided by opening for the growth rate. The denominator grows faster, and the capital ratio falls by 0.33 percentage points.
Changing both inputs at once can hide the explanation. Hold the old denominator fixed while replacing capital, then replace the denominator. This provides a bridge whose steps reconcile to the net change.
| Step | Capital (USD) | Risk-weighted assets (USD) | Ratio | Movement |
|---|---|---|---|---|
| June reported position | 600,000,000 | 5,000,000,000 | 12.00% | — |
| September capital, June denominator | 630,000,000 | 5,000,000,000 | 12.60% | +0.60 percentage points |
| September reported position | 630,000,000 | 5,400,000,000 | 11.67% | -0.93 percentage points |
| Net change | -0.33 percentage points |
The middle row is a variation that changes only capital. It shows the improvement that would have occurred if risk-weighted assets had stayed fixed. The final step shows the denominator effect under this stated bridge order. Use unrounded ratios to calculate each step; displayed movements are rounded to two decimal places.
The bridge does not explain why capital or risk-weighted assets changed. Ask the capital owner for the approved movement schedules. Profit retention, distributions, capital instruments, portfolio movements and reporting revisions require supporting records before they can become a management explanation.
Run a component tie and a ratio tie. First, the calculated Tier 1 total must match the approved Tier 1 total on the capital schedule. In September, $570,000,000 plus $60,000,000 must equal $630,000,000, with no unexplained adjustment left outside the comparison.
Second, the unrounded quotient multiplied by its denominator must recover the numerator:
=(630000000/5400000000)*5400000000
That returns $630,000,000. A rounded display percentage will not provide an exact reconstruction, so use the underlying cell value. Then compare the computed ratio with the supplied reported ratio using the source's stated rounding convention. A difference beyond that convention needs investigation.
Watch the imported format too. The FFIEC's download guidance identifies certain capital ratio entries displayed as decimal fractions rather than percentages. Keep the source value separate from its display format to avoid multiplying an already formatted percentage again.
Capital reporting owns the approved inputs and their calculation basis. Finance can reconcile the quarterly trend and prepare the movement explanation. Treasury and management can use that explanation when discussing planned growth, distributions and capital needs, while the responsible regulatory team assesses applicable requirements.
Read the ratio with other measures rather than asking it to answer every banking question. Balance sheet ratios for banks put funding and asset mix alongside the capital picture. Bank asset quality ratios help frame separate questions about loan performance. Neither determines the regulatory capital numerator.
Upload an approved quarterly capital workbook or Google Sheet with its Tier 1 components, reported risk-weighted assets and source references. Covirage maps the columns; its tools compute and check the ratios and movements, and the external AI model explains the result with every figure traced to its rows. Create a free Covirage account in about a minute, then set up your business and bring a sample of your own data.
See Covirage for commercial banking for the broader reporting context.
Use the approved reported Tier 1 capital amount, which combines common equity Tier 1 and additional Tier 1 after applicable adjustments. Do not substitute accounting equity or add all preferred stock by description. The bank's capital-reporting team determines the eligible reported amounts.
Both ratios can use the same reported risk-weighted asset denominator, but total regulatory capital also includes eligible Tier 2 capital. A comparison must retain the numerator's full label. An increase in Tier 2 alone does not increase the Tier 1 ratio.
Risk-weighted assets may have increased faster than Tier 1 capital. Separate the numerator's movement from the denominator's movement, then obtain the approved explanation for each. That distinguishes capital generation from exposure growth, changes in portfolio composition and reporting revisions.
No. The risk-based ratio uses risk-weighted assets. A Tier 1 leverage ratio uses a defined average asset base after applicable deductions, and a supplementary leverage ratio uses total leverage exposure. The shared capital label does not make the denominators interchangeable.