Common equity tier 1 capital ratio at HSBC 2013-2018
The common equity tier 1 capital ratio of HSBC dropped to 14 percent in 2018. This was down from 14.5 percent the year earlier, the highest ratio in the past six years.
What is the tier 1 capital ratio?
Tier 1 capital is essentially the amount of money a bank has on hand in case it needs to cover unexpected expenses from risky transactions. Core capital is mostly the combination of retained earnings and common stock. This statistic reports the value of this common stock against risk divided by the risk-weighted total of HSBC’s assets. This is important because losses in these assets or a sudden uptick in withdrawals can easily be covered by tier 1 capital, making this a measure of a bank’s robustness.
Importance of core capital
Banks keep core capital to guard against unexpected expenses. In the very short run, commercial banks can also borrow from the central bank’s discount window for a low interest rate. In the United States, this is the federal funds rate. Without such reserves and financing options, a run on deposits or a large default on assets can lead to insolvencies.
What is the tier 1 capital ratio?
Tier 1 capital is essentially the amount of money a bank has on hand in case it needs to cover unexpected expenses from risky transactions. Core capital is mostly the combination of retained earnings and common stock. This statistic reports the value of this common stock against risk divided by the risk-weighted total of HSBC’s assets. This is important because losses in these assets or a sudden uptick in withdrawals can easily be covered by tier 1 capital, making this a measure of a bank’s robustness.
Importance of core capital
Banks keep core capital to guard against unexpected expenses. In the very short run, commercial banks can also borrow from the central bank’s discount window for a low interest rate. In the United States, this is the federal funds rate. Without such reserves and financing options, a run on deposits or a large default on assets can lead to insolvencies.
