This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Regulatory Capital Categories for Banks and S&Ls

When we speak of banks that are "well-capitalized" or "undercapitalized," we are using strictly-defined regulatory terms.

There are five regulator-defined capital categories used to describe an institution's capital strength: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.

Each capital category has minimum requirements for the following three ratios:

  • Tier-1 leverage ratio: This is an institution's core capital (total equity capital with adjustments for unrealized gains and losses on securities, deferred tax benefits, non-qualifying preferred stock and other items) divided by its average total assets.
  • Tier-1 risk-based capital Ratio: Since this ratio uses risk-weighted assets as the denominator, it is usually higher than the tier-1 capital ratio. Bank assets are weighted by risk on Schedule RC-R of the Call Report. For example, cash is weighed 0% risk. Performing single-family mortgages have a 50% risk-weighting. Nonperforming loans will have higher risk-weightings. All securities and loans have risk-weightings defined by several factors, including the issuer and agency ratings.
  • Risk-adjusted capital ratio: This is the ratio of total risk-based capital to total risk-weighted assets. Risk-based capital is (roughly) tier-1 capital plus loan loss reserves. This is the ratio that most commonly slips below the minimum for an institution to be considered well capitalized under regulatory guidelines.

Capital Ratios and Regulatory Capital Categories

Taking those categories into account, the following are the criteria for determining a bank's capital health:

Well Capitalized

  • Core capital to adjusted tangible assets as least 5%
  • Core capital to risk-weighted assets at least 6%
  • Risk-adjusted capital ratio1at least 10%

Adequately Capitalized

  • Core capital to adjusted tangible assets at least 4%
  • Core capital to risk-weighted assets at least 4%
  • Risk-adjusted capital ratio at least 8%


  • Core capital to adjusted tangible assets less than 4%
  • Core capital to risk-weighted assets less than 4%
  • Risk-adjusted capital ratio less than 8%

Significantly Undercapitalized

  • Core capital to adjusted tangible assets less than 3%
  • Core capital to risk-weighted assets less than 3%
  • Risk-adjusted capital ratio at least less than 6%

Critically Undercapitalized

  • Tangible equity ratio less than 2%

The tangible equity ratio is an institution's tier-1 capital, plus non-qualifying preferred stock. For all the institutions on our list, the tangible equity ratio equals the tier-1 leverage ratio.

The vast majority of institutions are well capitalized, and many greatly exceed the minimum requirements for a well-capitalized institution.

Out of 8,459 domestic banks and thrifts reporting as of Sept. 30, 2008, all were well capitalized except for 161 institutions.

Even slipping to adequately capitalized is something that institutions try very hard to avoid.


The following are abbreviated definitions of Bank Call Report or Thrift Financial Report line items, used in capital ratios.

Abbreviated Definitions:

Tier-1 (core) capital: Total equity capital, less unrealized gains (losses) on available-for-sale securities and cash flow hedges, nonqualifying preferred stock, goodwill and other intangible items.

Tier-2 (supplementary) capital: Capital items disallowed from tier-1 capital, plus loan loss reserves.

Tier-3 capital allocated for market risk: Reported only by certain banks, subject to market risk capital guidelines. It includes capital to support market risk, not credit risk.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $95.18 1.64%
FB $117.44 -0.95%
GOOG $692.33 -0.84%
TSLA $232.32 -3.92%
YHOO $36.02 -1.40%


Chart of I:DJI
DOW 17,750.91 -140.25 -0.78%
S&P 500 2,063.37 -18.06 -0.87%
NASDAQ 4,763.2240 -54.37 -1.13%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs