Tier 1 Concept
Tiers were a way found by the Basel Committee to categorize the equity elements of the financial entities according with the quality and capacity to absorb the losses, being currently used by the regulatory entities of the financial system. Tier 1 is one of those categories and corresponds to the equity elements of higher quality, which are totally absorbent of losses and need, for that, to be always available. Basically are included in Tier 1 the institution’s equity (equity, non representative reservations of commitments and non distributed profits) and can also include preferential actions as long as they are not redeemable.
The banking industry defined at this level three types of elements, namely: core tier 1 capital, non-innovative tier 1 capital and innovative tier 1 hybrid capital instruments.
