Regulatory capital requirements are intended to ensure that a firm maintains sufficient capital to absorb unexpected losses as well as to fund the firm's ongoing activities. The basic concept is that a firm must have enough of the right type of capital, determined by capital adequacy ratios, to reduce the risk and impact of adverse events both on its depositors and other creditors and on the wider industry.

Tier 1 capital is the highest quality regulatory capital, which should be capable of absorbing a firm's losses on a going concern basis.

For more information about Tier 1 capital and regulatory capital, see Practice note, Regulatory capital for banks and investment firms: an overview.