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Risk Weight Summary
| Asset Category | Weight |
|---|---|
| Cash & Treasuries | 0% |
| GSE/Agency Securities | 20% |
| Residential Mortgages | 50% |
| Commercial Loans | 100% |
| Past-Due Loans | 150% |
| Other Assets | 100% |
Simplified weights inspired by Basel III and U.S. regulatory practice
Capital Adequacy Results
Status vs. Selected Thresholds
Pass
Risk-Weighted Assets
$60,250M
Total Exposure
$95,500M
CET1 Ratio
13.28%
Pass
Tier 1 Ratio
15.77%
Pass
Total Capital
19.09%
Pass
Leverage Ratio
9.95%
Pass
CET1 Surplus vs. Required CET1
$3,782.5M
Formula Breakdown
RWA = Σ(Asseti × Risk Weighti)
Capital Ratio = Capital / RWA
Capital Adequacy Thresholds
| Ratio | Minimum | Buffer | Status |
|---|---|---|---|
| CET1 | 4.5% | 7.0% | Pass |
| Tier 1 | 6.0% | 8.5% | Pass |
| Total Capital | 8.0% | 10.5% | Pass |
| Leverage | 3.0% | 5.0% | Pass |
RWA Breakdown by Asset Category
Model Assumptions
- Risk weights are simplified approximations inspired by Basel III and U.S. regulatory practice
- RWA is a simplified credit-risk-only proxy; excludes market-risk and operational-risk RWA
- Leverage exposure uses on-balance-sheet assets only (excludes off-balance-sheet items, derivatives, SFTs)
- AT1 and Tier 2 inputs are assumed fully eligible after applicable deductions, caps, and amortization
- G-SIB surcharge is met with CET1 capital; adjusted Tier 1 and Total targets shown are presentation targets only
- Single-period point-in-time analysis with static portfolio composition
- No countercyclical capital buffer (CCyB) included
- 5% leverage threshold reflects U.S. well-capitalized standard; Basel G-SIB leverage buffer (3% + surcharge/2) is below 5% for all selectable surcharge buckets
- Excludes jurisdiction-specific overlays (U.S. stress capital buffer, SLR/eSLR, CCAR)
- For educational purposes only. Not financial advice. Regulatory conventions simplified.
Understanding Bank Capital Adequacy
What Are Bank Capital Ratios?
Bank capital ratios measure the financial strength and resilience of banking institutions by comparing their capital buffers to their risk exposures. Regulators use these ratios to ensure banks can absorb losses during economic downturns without becoming insolvent, thereby protecting depositors and the broader financial system.
The Basel III Framework
Basel III, developed by the Basel Committee on Banking Supervision, is the global regulatory standard for bank capital adequacy. It introduces three pillars of capital measurement:
- CET1 Ratio (Common Equity Tier 1): The highest-quality capital (common stock + retained earnings - goodwill) divided by risk-weighted assets. Minimum: 4.5%, with a 2.5% conservation buffer.
- Tier 1 Ratio: CET1 plus Additional Tier 1 capital (preferred stock, CoCos) divided by RWA. Minimum: 6.0%.
- Total Capital Ratio: All capital tiers divided by RWA. Minimum: 8.0%.
- Leverage Ratio: Tier 1 capital divided by total exposure (non-risk-weighted). Minimum: 3.0%.
Core Formulas
RWA = Σ(Asseti × Risk Weighti)
CET1 Ratio = CET1 Capital / RWA
Leverage Ratio = Tier 1 Capital / Total Exposure
All ratios expressed as percentages
CET1 Ratio = CET1 Capital / RWA
Leverage Ratio = Tier 1 Capital / Total Exposure
All ratios expressed as percentages
Understanding Risk Weights
Risk weights reflect the relative credit risk of different asset categories. Cash and government securities carry a 0% weight (treated as zero-risk in this simplified model), while commercial loans carry 100% and past-due loans 150%. The risk-weighted approach means a bank holding mostly government bonds needs less capital than one with a commercial loan portfolio of the same size.
Key Insight: The leverage ratio acts as a backstop to risk-weighted ratios. It prevents banks from gaming risk weights to minimize capital requirements while still carrying large total exposures.
Prompt Corrective Action (U.S.)
In the United States, the Prompt Corrective Action (PCA) framework triggers escalating regulatory responses as capital falls:
- Well-capitalized: CET1 ≥ 6.5%, Tier 1 ≥ 8%, Total ≥ 10%, Leverage ≥ 5%
- Adequately capitalized: Meets minimums but below well-capitalized
- Undercapitalized: Below minimums — capital restoration plan required
- Critically undercapitalized: Tangible equity ≤ 2% of assets — FDIC may close the bank
Frequently Asked Questions
The Common Equity Tier 1 (CET1) ratio measures a bank's highest-quality capital — common stock and retained earnings, minus goodwill and intangibles — relative to its risk-weighted assets. Basel III requires a minimum CET1 ratio of 4.5%, with an additional 2.5% capital conservation buffer (met with CET1 capital) bringing the effective target to 7.0%. Banks falling below this target face automatic restrictions on dividends and bonus payments.
Risk-weighted assets assign a regulatory risk weight to each asset category based on its perceived credit risk. This calculator uses simplified weights inspired by Basel III and U.S. regulatory practice: government securities at 0%, agency securities at 20%, residential mortgages at 50%, commercial loans at 100%, and past-due loans at 150%. The RWA is the sum of each asset multiplied by its assigned risk weight, providing a standardized measure of regulatory credit risk exposure. Actual Basel III weights are more granular.
Basel III establishes three minimum capital ratios: CET1 at 4.5%, Tier 1 at 6.0%, and Total Capital at 8.0% of risk-weighted assets. The 2.5% Capital Conservation Buffer sits above these minimums, effectively raising target levels to 7.0%, 8.5%, and 10.5% respectively. Banks operating below the buffer face automatic constraints on capital distributions.
The leverage ratio divides Tier 1 capital by total exposure, providing a non-risk-based backstop to the risk-weighted capital ratios. Unlike capital ratios that use risk-weighted assets (where safer assets count less), the leverage ratio treats all on-balance-sheet assets equally regardless of perceived risk. Basel III requires a minimum 3% leverage ratio. In the United States, insured depository institutions are generally considered well-capitalized at 5% or above. This calculator uses on-balance-sheet assets as a simplified exposure measure; full Basel III leverage exposure is broader.
The Global Systemically Important Bank (G-SIB) surcharge is an additional capital buffer required for the largest, most interconnected banks. Basel III assigns G-SIBs to buckets with surcharges of 1.0%, 1.5%, 2.0%, 2.5%, or 3.5% of RWA, met with CET1 capital. This surcharge increases the effective CET1 target — for example, a bank with a 1.5% G-SIB surcharge must maintain CET1 of at least 8.5% (4.5% + 2.5% CCB + 1.5% G-SIB). G-SIBs also face a Basel leverage buffer of 50% of their surcharge above the 3% minimum, though this calculator uses the higher 5% U.S. well-capitalized threshold for the leverage ratio.
In the United States, banks that fall below minimum capital requirements face increasingly severe regulatory action under the Prompt Corrective Action (PCA) framework. Undercapitalized banks must submit capital restoration plans and face asset growth restrictions. Significantly undercapitalized banks cannot pay above-market deposit rates and need approval for new branches. Critically undercapitalized banks (tangible equity below 2% of total assets) may be closed by the FDIC. Other jurisdictions have analogous supervisory intervention frameworks.
Disclaimer
This calculator is for educational purposes only and uses simplified Basel III-style risk weights. Actual regulatory capital calculations involve more granular risk weights, off-balance-sheet exposures, derivatives netting, and jurisdiction-specific overlays. Consult official regulatory guidance and professional advisors for compliance purposes.
