CET1 vs Tier 1 vs Total Capital: Which Binds

A Bank Passes Four Capital Tests, and Only One Is Tight

Read any large bank’s capital disclosure and four numbers come at you: CET1, Tier 1, total capital, and the supplementary leverage ratio. They are not four views of the same thing, and they are not equally important. At any moment one of them sits closest to its own requirement, and that one governs what the bank can pay out. The other three are slack.

Analysts get this wrong by comparing ratio levels. A bank reporting 13% total capital and 11% CET1 has not told you which is tighter, because the two ratios are measured against different requirements. The question is never which ratio is highest. It is which has the least room above the line it must clear.

This guide is about telling the four apart and finding the binding one. For how the CET1 requirement itself is built and what headroom above it means, see our CET1 and bank capital ratios guide.

The Tiers Are Nested, Not Parallel

Each tier is the one below it plus a new instrument type. Nothing is double-counted, and nothing is measured separately.

CET1 → Tier 1 → total capital

Rung	What it equals	What sits in it	Why regulators treat it this way
CET1	Common equity less regulatory deductions	Common stock, retained earnings, most accumulated other comprehensive income; goodwill and certain deferred tax assets are deducted	Absorbs loss immediately and without any event happening. Dividends can be cut at will
Additional Tier 1 (AT1)	The step from CET1 to Tier 1	Perpetual preferred stock; no maturity, non-cumulative coupons the board can skip, converts or writes down at a capital trigger	Loss-absorbing while the bank is still trading, but only after common equity has taken the first hit
Tier 2	The step from Tier 1 to total capital	Dated subordinated debt, long enough dated to qualify, with the credit running off as maturity approaches; certain loan-loss allowances	Gone-concern capital. It protects depositors and senior creditors in resolution, not shareholders in a bad quarter

All three ratios divide by the same denominator, risk-weighted assets. So the arithmetic gaps between them are purely a funding-structure fact: the CET1-to-Tier 1 gap is how much preferred the bank has issued, and the Tier 1-to-total gap is how much subordinated debt. A bank with no preferred and no sub debt reports the same number three times.

That is the whole disambiguation. The confusion in the market comes from treating “Tier 1” as a synonym for quality capital, when Tier 1 is simply CET1 with the preferred stack added back.

The Supplementary Leverage Ratio Is a Different Test Entirely

The fourth ratio does not belong to the ladder. The supplementary leverage ratio (SLR) divides Tier 1 capital by total leverage exposure: on-balance-sheet assets plus certain off-balance-sheet exposures, with no risk weights applied at all.

Risk weighting is the point of difference. Under the risk-based ratios, a Treasury bill and a leveraged loan consume very different amounts of capital. Under the SLR they consume the same amount, because the denominator counts dollars of exposure rather than dollars of risk. The SLR exists as a backstop for exactly the case where a bank’s risk models say its balance sheet is safe.

This produces the one situation that catches analysts out. A bank takes in deposits and parks them in reserves and short Treasuries. Risk-weighted assets barely move, so CET1, Tier 1 and total capital all look unchanged. Total leverage exposure rises dollar for dollar, and the SLR falls. Nothing in the risk-based ratios flags it. A bank stuffed with low-risk-weight assets is the classic SLR-bound case, and it is why balance-sheet growth in Treasuries can quietly stop a buyback.

What Moves Each Ratio

The most useful thing to hold in your head is not the definitions but the response table: which corporate action moves which ratio, and by how much.

Action	CET1	Tier 1	Total capital	SLR
Retain earnings	Up	Up	Up	Up
Buy back stock	Down	Down	Down	Down
Issue preferred (AT1)	Flat	Up	Up	Up
Issue subordinated debt (Tier 2)	Flat	Flat	Up	Flat
Credit losses through provisions	Down	Down	Down	Down
Mark on available-for-sale securities	Down	Down	Down	Down
Grow the book in low-risk-weight assets	Roughly flat	Roughly flat	Roughly flat	Down
Grow the book in high-risk-weight loans	Down	Down	Down	Down

Read the third and fourth rows together, because they carry the practical payoff. Preferred and subordinated debt fix the lower rungs of the ladder and do nothing whatever for CET1. A bank short of total capital can issue sub debt and be done inside a week. A bank short of CET1 has three options, all slow: retain earnings, cut the distribution, or shrink risk-weighted assets. That asymmetry is why CET1 is the rung that usually ends up binding, and why a CET1 problem is a shareholder problem in a way that a total-capital problem is not.

The securities-mark row deserves its own note, and a caveat. An unrealised loss on the available-for-sale book flows through accumulated other comprehensive income into common equity, so it lands on CET1 first and then drops through Tier 1 and total capital by the same number of dollars. Because CET1 is measured against the highest requirement of the three, the same shock consumes the most headroom at the top of the stack. The caveat is that only the largest banks are held to this. Smaller firms, including US Bancorp and PNC in the table below, may elect to keep those marks out of regulatory capital, so their ratios barely flinch when rates move against the securities book.

Finding the Binding Ratio: Do It in Money

Percentages are not comparable across the four tests. Convert each to a dollar cushion and the answer falls out.

For each ratio: cushion = (reported ratio − requirement for that ratio) × the relevant denominator. Risk-weighted assets for CET1, Tier 1 and total capital; total leverage exposure for the SLR.

Take the teaching bank from the primer’s capital walk: risk-weighted assets of $500bn, CET1 ratio 11.5% (so CET1 capital of $57.5bn), against a total CET1 requirement of 10.0% (required capital $50.0bn). The CET1 cushion is 1.5 pp × $500bn = $7.5bn.

Now repeat the same subtraction for Tier 1, for total capital, and for the SLR from the bank’s own capital disclosure. Four dollar cushions. The smallest one is the binding constraint, and it is the ceiling on distributions no matter how comfortable the other three look.

Two points of discipline when you do this:

• Use the right requirement for each rung. The requirements are firm-specific and republished annually, so read the current figures for the bank you are looking at from the Federal Reserve’s large-bank capital requirements table and the bank’s own disclosure. The requirements below are the CET1 ones; Tier 1, total-capital and SLR requirements have to be looked up separately, and they are not the same numbers.
• Check the approach, not just the ratio. Banks running both standardised and advanced approaches report a ratio under each, and the lower one binds. JPMorgan is the live example: standardised CET1 of 14.6% at end-FY2025 against an advanced figure of 14.1%, so the advanced ratio is the constraint.

Requirements Are Firm-Specific, So Ratio Levels Tell You Nothing Alone

The reason the money-based method matters is that two banks with similar ratios can face requirements two full percentage points apart. Verified total CET1 requirements effective 1 Oct 2025:

Bank	Total CET1 requirement	End-FY2025 CET1
Citigroup	11.6%	13.2%
JPMorgan Chase	11.5%	14.6% standardised / 14.1% advanced
Bank of America	10.0%	11.4%
Wells Fargo	8.5%	10.61%
US Bancorp	7.1%	10.8%
PNC Financial	7.0%	10.6%

Citigroup reports 2.6 pp more CET1 than Wells Fargo, 13.2% against 10.61%, and has half a point less room above its own line: +1.6 pp against +2.1 pp. US Bancorp and PNC invert it further still: both sit in the bottom three on the ratio and hold the two widest gaps in the table. Bigger banks carry a G-SIB surcharge that smaller ones do not, so the same ratio means different things. The requirement stack and our buffer screen are covered in the CET1 guide; the PNC CET1 figure was labelled estimated at the 4Q release.

Why This Decides Whether Buybacks Are Safe

Distribution capacity is the reason any of this reaches the equity story. A bank with a wide CET1 cushion can buy back stock, concentrating the same earnings over fewer shares and lifting ROTCE. Above tangible book that costs it book value per share, since it pays more than book for each share retired; the trade-off is in our P/TBV vs ROTCE guide. A bank with a thin cushion on any one of the four tests has to retain instead, and the market usually caps the multiple accordingly.

So the sequence for a buyback question runs: find the binding ratio, size its cushion in dollars, then ask what will consume it over the next year. Rising charge-offs eat CET1 from both directions, through retained earnings and through risk-weighted assets as credit migrates; that path is in the net charge-offs guide. Balance-sheet growth in safe assets eats the SLR without touching anything else.

For the capital and distribution picture on names at different points of the stack, see the JPMorgan Chase, Citigroup, and PNC Financial profiles.

What Matters Most

The four terms describe one balance sheet cut four ways: CET1 is common equity, Tier 1 adds preferred, total capital adds subordinated debt, and the SLR re-tests Tier 1 against unweighted exposure. Only the smallest cushion matters, and it is almost always CET1, because it is the only one that cannot be topped up with an issue of paper.