CET1 ratio (Common Equity Tier 1)

Bank capital ratios come in layers, and CET1 is the bottom layer — the capital that absorbs losses first and asks nothing in return. Common shares and retained earnings, divided by risk-weighted assets: assets scaled by how risky the rules judge them to be. A government bond weighs less than a leveraged loan, so two banks with identical balance-sheet totals can have very different denominators.

Two things make the ratio worth understanding rather than just trusting.

First, it is the reference point for the mechanical trigger in AT1 bonds: prospectuses define a CET1 level below which the bond converts or is written down. Whether that trigger ever actually fires before a regulator acts is a different question — the Credit Suisse case is the defining example, and the article below walks through it.

Second, the ratio answers a solvency question, not a survival question. Capital is what absorbs losses; funding is what lets the bank open tomorrow. A bank facing a run can hold roughly double its capital requirement and die anyway, because depositors and counterparties are not withdrawing capital — they are withdrawing cash. Solvent on paper, gone in a weekend. The distinction between a capital crisis and a liquidity crisis is arguably the single most useful thing a retail investor can learn from 2023.