Explanation:
Under the Basel III framework, Common Equity Tier 1 (CET1) capital represents the highest quality of regulatory capital. It primarily includes common equity and retained earnings, while certain intangible assets like goodwill must be fully deducted.
Total CET1 Capital = $2,010 + 3,210 - 850 = 4,370 \text{ EUR million}$.
Non-callable preferred equity typically qualifies as Additional Tier 1 (AT1) capital, and subordinated debt generally qualifies as Tier 2 capital, so they are not included in the CET1 calculation.
CET1 Ratio = , or 8.79%. Option A is correct.
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| Item | Value (EUR millions) |
|---|---|
| Common equity | 2,010 |
| Non-callable preferred equity | 500 |
| Subordinated debt | 1,500 |
| Retained earnings | 3,210 |
| Goodwill from prior acquisitions | 850 |
The bank has total risk-weighted assets of EUR 49,700 million. What is the correct ratio of Core Tier 1 Capital to risk-weighted assets (the CET1 ratio) that the analyst should calculate for the bank?
A
8.79%
B
9.80%
C
10.50%
D
11.51%
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