For a U.S. depositor, start with two figures: the bank’s Common Equity Tier 1 (CET1) ratio and its Tier 1 leverage ratio. Compare them with both regulatory minimums (4.5% CET1 and 4% leverage) and the federal “well-capitalized” benchmarks (6.5% CET1 and 5% leverage). Then check the Tier 1 and total-capital ratios, their direction over several reporting periods, stress-test results, liquidity, asset quality and uninsured-deposit exposure. Capital absorbs losses, but it cannot guarantee that a bank will avoid a liquidity run or failure.
What a bank capital ratio tells a depositor
Bank capital is the portion of funding that belongs to owners and other instruments that can absorb losses before depositors and other creditors take losses. A capital ratio expresses that buffer relative to either the bank’s risk-weighted assets or its total assets.
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The Federal Reserve describes capital’s primary function as supporting operations, absorbing unanticipated losses and declines in asset values, and protecting uninsured depositors and debt holders if the bank is liquidated. That makes capital a solvency measure: it indicates how much loss a bank can take before its obligations exceed its assets. It is not a promise that withdrawals can always be met immediately.
For a U.S. depositor, a practical first screen is:
- CET1 ratio: Preferably at or above 6.5%, the federal well-capitalized benchmark, rather than merely above the 4.5% minimum.
- Tier 1 leverage ratio: Preferably at or above 5%, compared with the 4% minimum.
- Trend: A stable or rising ratio is generally more reassuring than a one-quarter spike followed by deterioration.
- Context: Review liquidity, funding concentration, loan and securities quality, stress-test results and the amount of deposits that are uninsured.
These thresholds and classifications are U.S.-specific. Other countries implement Basel standards with different buffers, reporting dates and definitions.
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The four core U.S. ratios
CET1 capital ratio
The Common Equity Tier 1 ratio is CET1 capital ÷ standardized risk-weighted assets. CET1 is primarily common shareholders’ equity and retained earnings, after regulatory deductions. It is usually the cleanest starting point because it focuses on the form of capital most able to absorb losses while the bank remains a going concern.
Risk-weighted assets (RWA) assign different weights to assets according to regulatory estimates of credit and other risks. A low-risk government exposure can receive a lower weight than a risky commercial loan, so two banks with the same dollar amount of assets can report different CET1 ratios.
Tier 1 capital ratio
The Tier 1 ratio is Tier 1 capital ÷ standardized risk-weighted assets. Tier 1 includes CET1 plus qualifying additional Tier 1 instruments, such as certain perpetual securities. Comparing Tier 1 with CET1 shows how much of the bank’s primary capital comes from common equity versus additional instruments.
Total capital ratio
The total capital ratio is (Tier 1 capital + qualifying Tier 2 capital) ÷ standardized risk-weighted assets. Tier 2 can include qualifying subordinated debt and other instruments that absorb losses later than CET1. A strong total-capital ratio is useful, but it should not substitute for checking CET1 quality.
Tier 1 leverage ratio
The Tier 1 leverage ratio is Tier 1 capital ÷ average total consolidated assets, after specified regulatory deductions. Unlike risk-based ratios, it does not reduce the denominator according to modeled risk weights. It therefore acts as a simpler backstop against excessive balance-sheet expansion.
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Supplementary leverage ratio
Large institutions subject to the supplementary leverage standard report Tier 1 capital divided by total leverage exposure. That exposure includes certain off-balance-sheet commitments, derivatives and other items that a simple total-assets measure may omit. The Federal Reserve’s stress-test materials list a 3% supplementary leverage minimum for applicable firms. Most community-bank depositors will not use this ratio as their primary screen, but it matters when evaluating a large, complex institution.
Minimums versus “well-capitalized” benchmarks
Meeting a minimum means the bank satisfies a regulatory floor; it does not mean the bank has a large safety margin. The federal “well-capitalized” category uses higher thresholds and is a more useful screening reference for depositors.
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Outbyte PC Repair FREEClear out junk files and repair common Windows errorsFree Scan →Outbyte Driver Updater FREEScan for outdated or missing drivers - takes under a minuteDriver Scan →| Measure | U.S. minimum | Federal well-capitalized benchmark | What it measures |
|---|---|---|---|
| CET1 risk-based ratio | 4.5% | 6.5% | Common equity against standardized risk-weighted assets |
| Tier 1 risk-based ratio | 6% | 8% | Tier 1 capital against standardized risk-weighted assets |
| Total risk-based capital ratio | 8% | 10% | Tier 1 plus qualifying Tier 2 capital against standardized risk-weighted assets |
| Tier 1 leverage ratio | 4% | 5% | Tier 1 capital against average total consolidated assets |
| Supplementary leverage ratio | 3% for applicable large firms | Not stated as a separate well-capitalized benchmark in the cited table | Tier 1 capital against total leverage exposure, including specified off-balance-sheet items |
The well-capitalized figures are screening benchmarks, not forecasts. A bank can exceed them and still face losses, governance problems or a rapid run on deposits. Conversely, a ratio below a well-capitalized benchmark is a reason to investigate rather than proof that failure is imminent.
How current U.S. figures should be interpreted
The Federal Reserve reported an aggregate CET1 ratio of about 13% for banking organizations at year-end 2025, in a 2026 publication. It also reported that more than 99% of banks were well capitalized at that reporting date. Those are system-wide observations, not a substitute for checking an individual institution.
Aggregate data can hide wide differences. A ratio is affected by capital, asset values, risk weights, deductions and the composition of the balance sheet. One bank may have a high CET1 ratio because it holds low-risk assets; another may have a lower ratio while serving riskier borrowers and earning more. Compare banks with similar business models and review several periods.
A step-by-step review for depositors
- Identify the legal bank. Use the name on your account agreement and confirm which insured bank holds the deposit. A fintech app or brokerage brand may place funds at a separate partner bank.
- Find the latest regulatory filing. Look for the bank’s call report or other regulatory capital disclosure. Note the reporting date, because ratios are periodic snapshots rather than live readings.
- Record four primary numbers. Write down CET1, Tier 1 risk-based, total risk-based and Tier 1 leverage ratios. For a large institution, also record the supplementary leverage ratio if disclosed.
- Compare with both sets of thresholds. Put each figure beside the applicable minimum and well-capitalized benchmark. Calculate the percentage-point cushion instead of asking only whether the number is positive.
- Review the trend. Compare at least several reporting periods. Ask whether a change came from retained earnings, new share issuance, asset growth, losses, securities marks, a change in risk-weighted assets or a regulatory adjustment.
- Read stress-test disclosures when applicable. Large banks publish results showing how capital would behave under severe hypothetical economic conditions. A passing result does not model every possible shock, but it reveals sensitivity to unemployment, falling asset prices and credit losses.
- Check liquidity and funding. Review liquid-asset holdings, reliance on volatile wholesale funding, the maturity of borrowings and the pace of deposit changes. Capital cannot pay withdrawals if assets cannot be sold or financed quickly.
- Assess asset quality and concentration. Look for rising delinquency, nonperforming loans, commercial-real-estate exposure, securities losses and concentrations in one industry, geography or borrower group.
- Estimate uninsured-deposit exposure. Deposits above applicable insurance limits can leave quickly when confidence falls. A bank with a high share of uninsured or concentrated deposits may face more liquidity pressure than its capital ratios suggest.
How to compare two banks
Use the same reporting date and the same ratio definitions whenever possible. A comparison based on one bank’s quarter-end figures and another bank’s year-end figures can create a false difference.
1. Compare capital quality
Start with CET1. Then compare the gap between CET1 and Tier 1. A wide gap means additional Tier 1 instruments make up more of Tier 1 capital; a narrow gap means common equity supplies most of it. Examine total capital separately to see how much Tier 2 contributes.
2. Compare risk sensitivity
Risk-based ratios incorporate regulatory risk weights and can look strong even when a bank has substantial exposure to risks that are difficult to model. The leverage ratio ignores those weights and shows the capital cushion against the whole balance sheet. Consider both rather than choosing one winner.
3. Compare distance from the benchmarks
For each ratio, calculate the cushion above the minimum and above the well-capitalized level. A bank at 7% CET1 is above the 4.5% minimum but below the 6.5% well-capitalized benchmark; that warrants more investigation than a bank at 12% CET1, all else equal.
4. Compare resilience, not just a snapshot
Look for a consistent record through changing interest rates and credit conditions. Ask whether capital remains adequate after stress-test scenarios and whether management has explained material declines.
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5. Compare liquidity alongside capital
A bank can be solvent on paper yet unable to meet an immediate wave of withdrawals. Compare cash and readily marketable securities, funding stability, deposit concentration and the speed of recent outflows.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Why a high ratio can still miss important risks
Liquidity runs
Capital absorbs losses over time; a run creates a demand for cash now. If a bank must sell long-duration securities quickly, realized losses can reduce capital even when the securities were previously carried at favorable values.
Interest-rate and securities risk
Rapid rate changes can reduce the market value of fixed-rate securities and weaken the economics of loans made at older rates. Read disclosures about unrealized losses, hedging and the duration of securities rather than assuming a high CET1 ratio eliminates rate risk.
Credit concentration
Losses can be correlated. Heavy exposure to one property market, industry or borrower type can produce a sharper decline than diversified risk-weight models imply. Concentration schedules and nonperforming-loan trends add information that a single ratio cannot provide.
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Capital ratios do not directly measure fraud, technology outages, weak controls, litigation or poor management decisions. These problems can trigger withdrawals and losses before a quarterly ratio changes.
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Measurement and timing limits
Regulatory ratios depend on accounting values, deductions, risk weights and the reporting date. They can change when assets are sold, provisions are booked, capital is raised or rules are amended. Treat them as dated indicators, not real-time guarantees.
What to do when a ratio is below the well-capitalized level
Do not conclude automatically that the bank is unsafe. First verify the date, ratio definition and whether a temporary event explains the result. Then:
- Check whether the ratio is still above the regulatory minimum.
- Review the direction over previous periods and management’s explanation for the change.
- Examine liquidity, uninsured deposits, asset quality and concentration risks.
- Read any regulatory enforcement, capital-plan or stress-test disclosures available for that institution.
- Keep deposits within applicable insurance limits and understand how accounts are aggregated under ownership categories.
- Consider diversifying cash among insured institutions if your balances or risk tolerance make concentration uncomfortable.
A ratio below the well-capitalized benchmark is a prompt for deeper review, not an automatic failure conclusion. A ratio that falls below a regulatory minimum, especially alongside deteriorating liquidity or asset quality, is a much more serious warning.
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U.S. scope and international comparisons
The 4.5%, 6%, 8% and 4% minimums and the 6.5%, 8%, 10% and 5% well-capitalized benchmarks described here apply to the U.S. framework. Basel-based systems elsewhere may use different buffers, countercyclical add-ons, leverage rules, reporting forms and definitions of capital. Do not compare a foreign bank’s headline CET1 number with a U.S. bank’s number without checking the local implementation and reporting basis.
A practical decision rule
For ordinary U.S. deposit decisions, favor a bank whose CET1 and Tier 1 leverage ratios are comfortably above the well-capitalized benchmarks, remain stable or improve across reporting periods, and are supported by sound liquidity and diversified assets. Treat a ratio close to a minimum, a sharp unexplained decline, heavy uninsured-deposit concentration or weakening liquidity as a reason to investigate further or limit uninsured balances. No single percentage answers whether every deposit is safe; the useful judgment comes from combining capital quality, capital quantity, trend, liquidity and funding information.
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