What is a Tier 1 capital ratio?

The Tier 1 capital ratio is a key indicator of the security and stability of the banking system. It shows that a bank has a stronger capital base relative to its risks, which improves its ability to absorb losses.

It is a measure of a bank’s financial stability and resilience. More specifically, the ratio shows the relationship between a bank’s core capital (Tier 1 capital) and its risk-weighted assets (RWA).

The required Tier 1 capital ratio is set by the regulatory authorities. Liechtenstein banks have an average Tier 1 capital ratio of more than 20 per cent, which is well above the international minimum requirement of 6 per cent under the Basel III rules.