Tier 1 capital#Tier 1 capital ratio

The core capital ratio, even in core capital quota or tier 1 ratio, is a business management measure from the scope of their legislation that the covered by the share capital, subject to capital charges risk-weighted assets indicating in particular the loans. It measures what percentage must be more risk-bearing assets, to the liable equity capital of a credit institution has been completely absorbed and thus acute risk of insolvency.

Values

The core capital ratio could theoretically range between 0% and 100%; but practically occur only between 4 % and 20%.

• From § 10 para 1d sentence 1 of the Banking Act, a core capital ratio of at least 4% can be indirectly inferred, since the supplementary capital shall not exceed the amount of core capital. Only when the core capital ratio of at least 4.4% of risk-weighted assets, a bank may make revaluation reserves in the supplementary capital claims.
• At least 4 %: According to the provisions of the Austrian Banking Act (based on Basel I) a core capital ratio of at least 4 % is required.
• Less than 5%: For core capital ratios below five percent, the Federal Financial Supervisory Authority ( BaFin) in general will be active.
• Over 7%: A ratio of at least seven percent considered an indicator of a healthy bank balance.
• In the UK, a ratio of 9% required by the banks since the financial crisis. If this is not achieved, money must be obtained from the government rescue package, which also has a corresponding state participation is connected.
• According to Basel III core capital ratio of 7 % by 2018 is required.
• In the wake of the financial crisis, the EU 's core capital ratio of 9 % by June 2012 decided. Unless the banks not to comply with the deadline for State intervention and in the last step of the EFSF.

Basis of calculation

There are different ways of calculating the relevance to the core capital ratio own funds ( " animal units " ), which must be specified in the annual accounts of credit institutions ( " animal " german, rank ).

Tier 1 capital (core capital ): Share capital, share premium, retained earnings, common shares in treasury, be designated as obligation to purchase own shares equity adjustments from foreign currency translation, minority interest, non-cumulative preference shares and reserves for general banking risks. Fully deducted from Tier 1 capital include goodwill and other intangible assets. The total, this is considered in relation to risk- weighted assets. The resultant percentage is the core capital ratio.

Non-core capital includes the further animal units: Tier 2 capital ( supplementary capital ): Unrealized gains on listed securities, other inherent loss allowance, cumulative preference shares that qualified subordinated liabilities. Should be deducted from Tier 2 capital are listed in § 10 paragraph 6 and § 10 paragraph 6 of the Banking Act in conjunction with § 10a KWG mentioned positions.

Tier 3 capital ( Tier III ): short-to medium-term subordinated debt with a maturity of at least two but less than five years be counted as Tier III capital. This may only be used for eligible amounts of market risk positions. May be added Calculated the proportional gain that would result from closing all trading book positions ( unrealized trading book profits).

As the sum of all animal units results in regulatory capital. Such a breakdown of the various " animal units " illustrates, for example, the 2007 annual financial statements of Deutsche Bank AG.

The core capital ratio now results from the sum of Tier 1 capital divided by the attributable amount of all (address ) exposure ( here are capital charges for market risk and operational risk considered).

Background

For banks, the existing or required own funds due to the nature of the business, notwithstanding the determined from other industries, but also financial businesses such as insurance companies. The individual equity positions are divided in terms of their ability to service debt and for more analysis on the core capital, as it is permanently the operations and has the highest adhesion quality, used as a base.

The " animal units " reflect a gradation of adhesion quality. At the core capital of Tier 1 capital those items are included, have the highest liability priority. In contrast, Tier III capital as subordinated debt ( which formally already as a liability, and not just as equity to expel are ) only to be classified as equity if the Tier 1 positions to satisfy the (not nachrangingen ) are not adequate creditors. For this reason, is focused more on the conservative Tier 1 capital in analyzes.

To determine the core capital ratio thus determined the core capital in relation to risk- weighted assets of the credit institution, in particular the loans granted set.

The higher the value determined therefrom, the greater the percentage covered by equity loans. This means that at a core capital ratio of 7%, for example, within a financial year a total of 7% of risk-weighted assets would have to fail before the liable capital of the credit institution concerned has been completely absorbed, and thus there would be acute danger of insolvency. It can be concluded that a credit institution with high core capital ratio threatens a relatively low own risk of insolvency, when it should be bigger loan defaults. However, the core capital ratio decreases not only with lower Tier 1 capital (eg by reducing shareholders' equity depreciation and impairment losses), but also by the credit rating downgrades stocks, because these form part of the denominator in the formula.

Minimum core capital ratio

From the statutory provisions require a minimum core capital ratio can be derived in Germany. The modified available capital within the meaning of § § 2 para 2 and Solvency Regulation 10, paragraph 1d sentence 1 KWG consists primarily of the core capital and supplementary capital ( liable capital; § 10 paragraph 2 sentence 2 KWG). When calculating the liable equity capital supplementary capital may, however, be taken into account only up to the amount of core capital (§ 10 paragraph 2 sentence 3 of the Banking Act; central capping rule). Hence the obligation arises, to a core capital ratio ( Tier 1 ) of at least 4%. The minimum core capital ratio rises from 2013 ( 4.5%), 2014 ( 5.5 %) to be 6% from the year 2015.