Tier 1 capital is the core measure of a bank's financial strength from a regulator's point of view.
Capital in this sense is related to, but different from, the accounting concept of shareholders' equity.
The theoretical reason for holding capital is that it should provide protection against unexpected losses.
In Basel I agreement, Tier 1 capital is a minimum of 4% ownership equity but investors generally require a ratio of 10%.
The BCBS rules for calculation of the components of total RWA have seen a number of changes following the Financial crisis of 2007–08.