Under Basel III, Common Equity Tier I (CETI) risk-weighted requirements consist of a capital ratio of 4.5% plus an additional capital conservation buffer of 2.5%, making up a CETI ratio of 7%. With risk-weighted assets of $200 million, therefore, the bank’s CETI requirement will be $14 million (= 7% × $200m)

Things to Remember

• Basel III is a global regulatory framework on bank capital adequacy, stress testing, and market liquidity risk agreed upon by the members of the Basel Committee on Banking Supervision.
• Common Equity Tier 1 (CET1) capital is the highest quality of capital under Basel III regulations, consisting of common shares and retained earnings.
• The Capital Conservation Buffer is an additional requirement under Basel III that aims to ensure that banks build up capital buffers outside periods of stress.
• Risk-weighted assets are a measure of the total assets of a bank, adjusted for risk. Different types of assets have different risk weights assigned to them.
• Capital ratios, such as the CET1 ratio, are important indicators of a bank's financial health and ability to absorb losses.