Common Equity Tier 1 (CET1) is the highest-quality regulatory capital — consisting primarily of common stock, retained earnings, and accumulated other comprehensive income (AOCI) minus regulatory deductions. The CET1 ratio (CET1 capital / risk-weighted assets) is the most closely watched bank safety measure under Basel III.
CET1 was introduced as a distinct capital category under Basel III (2013) to separate the highest-loss-absorbing capital from lower-quality Tier 1 and Tier 2 instruments. The Basel III framework implemented in the US requires a minimum CET1 ratio of 4.5% of risk-weighted assets (RWA), as codified in the OCC's capital rules at 12 CFR Part 3 (https://www.ecfr.gov/current/title-12/chapter-I/part-3) and the Federal Reserve's Regulation Q. CET1 components include: common shares issued and fully paid-in, retained earnings, accumulated other comprehensive income (AOCI — includes unrealized gains/losses on AFS securities), common shares issued by subsidiaries (meeting criteria), and minus regulatory deductions (goodwill, intangibles, deferred tax assets, certain investments in unconsolidated financial institutions). The Federal Reserve conducts annual stress tests (DFAST and CCAR) for large banks — projecting whether CET1 ratios remain above regulatory minimums under severely adverse economic scenarios. Results are published at federalreserve.gov/supervisionreg/stress-tests-capital-planning.htm. These tests determine how much capital large banks can return to shareholders (buybacks and dividends) and significantly influence their appetite for business lending. For small business borrowers, CET1 is the most important single indicator of a lending bank's health and future capacity to lend. Banks with strong CET1 buffers (10%+ at large banks) have room to absorb losses and continue growing their loan books. Banks with CET1 close to regulatory minimums must preserve capital, often pulling back from riskier small business and commercial lending first.
4.5% of risk-weighted assets under Basel III as implemented in US bank capital rules (12 CFR Part 3). To be 'well-capitalized' under US Prompt Corrective Action rules, banks must maintain a CET1 ratio of at least 6.5%. Large G-SIBs face additional capital surcharges (CET1 G-SIB buffers) on top of minimum requirements.
CET1 is the subset of Tier 1 that is highest-quality — primarily common equity and retained earnings. Tier 1 capital is broader and also includes Additional Tier 1 (AT1) instruments (preferred stock, contingent convertible bonds). CET1 is the most closely watched ratio because it represents pure loss absorption without the complexity of hybrid instruments.
FFIEC BankFind Suite (ffiec.gov/npw/) for call report data on all insured institutions. SEC filings (10-Q, 10-K) for publicly traded banks. Federal Reserve stress test results at federalreserve.gov/supervisionreg/stress-tests-capital-planning.htm. Large banks publish CET1 ratios prominently in quarterly earnings releases.