Capital Requirement

The amount of capital a bank must hold to act as a cushion to absorb unanticipated losses and declines in asset values that could otherwise cause a bank to fail. Banking regulators require banks to hold more high-quality, or Tier 1, capital against total risk-weighted assets under the Basel III international accord. U.S. banks are classified as well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, or critically undercapitalized based on regulators’ capital and leverage calculations.

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