Tier 1 = Equity (50m) + Noncumulative preferred stocks (10m) = 60m
Tier 2 = Subordinated debt (30m) + Cumulative preferred stocks (5m) = 35m

Things to Remember

• Tier 1 capital is the core capital of a bank, consisting of equity and disclosed reserves.
• Tier 2 capital includes subordinated debt, undisclosed reserves, and hybrid instruments.
• Basel I regulations were the first international set of banking regulations on capital adequacy and were introduced in 1988.
• Equity is the most loss-absorbing component of a bank's capital structure.
• Preferred stocks are a type of equity security with characteristics of both equity and debt.