Tier 1 equity capital has increased from 2% to 4.5%, and the definition of equity capital
has been tightened; and Total Tier 1 Capital has increased from 4% to 6%.
Under Basel III, the old Tier 1 Capital has been split into two:
(a) Tier 1 Equity Capital, which includes share capital and retained earnings but does
not include goodwill or deferred tax assets.
(b) Additional Tier 1 Capital consists of items, such as non-cumulative preferred stock,
that were previously Tier 1 but are not common equity.
Tier 1 Equity Capital must be at least 4.5% of RWAs
Total Tier 1 Capital must be at least 6% of RWAs.
Basel I requires Tier 1 equity capital to be at least 2% of RWA and Total Tier 1 Capital to
be at least 4% of RWAs. The Basel III rules are much more demanding because (a) these
percentages have been increased and (b) the definition of what qualifies as equity capital
for regulatory purposes has been tightened.