Tier 1 capital is divided into:

• Tier 1 Equity Capital, also called Core Tier 1 capital.
• Additional Tier 1 Capital.

Tier 1 Equity Capital consisted of the following:

• Common equity.
• Retained earnings.
• Limited amount of minority interest and unrealized gains and losses.

Additional Tier 1 Capital includes:

• Unguaranteed, unsecured, non-cumulative perpetual preferred equity instruments subordinated to depositors and subordinated debt callable after five or more years.
• Debt with suitable factors leads to conversion to equity or write-downs.
• Approved minority interest excluded in Core Tier 1 capital.

(Note: The original text contained a typo stating "A and B are incorrect". The correct components of Tier 2 capital referenced are B and C).
B and C are incorrect. These are components of Tier 2 capital.
D is incorrect. Goodwill and other intangibles are actually deducted when calculating Tier 1 capital.

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.
• Tier 1 capital is the core measure of a bank's financial strength from a regulator's point of view.