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Tier II capital

Pankaj Arora (Learner) (3134 Points)

13 October 2011

What is tier – I capital and tier II capital. Its in news that SBI need tier II capital?

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jeets (CS ) (461 Points)
Replied 13 October 2011

Tier 1

A term used to describe the capital adequacy of a bank. Tier I capital is core capital, this includes equity capital and disclosed reserves.

Capital is the core measure of a bank's financial strength from a regulator's point of view. It is composed of core capital,[1] which consists primarily of common stock and disclosed reserves (or retained earnings),[2] but may also include non-redeemable non-cumulative preferred stock. The Basel Committee also observed that banks have used innovative instruments over the years to generate Tier 1 capital; these are subject to stringent conditions and are limited to a maximum of 15% of total Tier 1 capital.Capital in this sense is related to, but different from, the accounting concept of shareholders' equity. Both Tier 1 and Tier 2 capital were first defined in the Basel I capital accord and remained substantially the same in the replacement Basel II accord.

Tier 2

A term used to describe the capital adequacy of a bank. Tier II capital is secondary bank capital that includes items such as undisclosed reserves, general loss reserves, subordinated term debt, and more.

capital represents "supplementary capital" such as undisclosed reserves, revaluation reserves, general loan-loss reserves, hybrid (debt/equity) capital instruments, and subordinated debt.

Check below link for more details

https://en.wikipedia.org/wiki/Tier_1_capital