Regulators classify qualifying capital into tiers. Common equity tier one capital mainly consists of paid up capital and its associated share premium accounts, retained earnings and accumulated and other comprehensive income and other reserves. Important deductions are goodwill and other intangible assets such as deferred tax assets. CET1 is considered the highest quality regulatory capital and is very easily liquidated to absorb losses. Additional tier one capital consists of paid up capital instruments, such as preference shares and hybrid debt instruments called contingent convertibles. These are able to be written down or converted to CET1 instruments if the CET1 ratio falls below a certain level. AT1 instruments must not have any features that could hinder the recapitalization of the institution if the trigger event occurs. Tier one capital for an institution is the sum of its CET1 and AT1 capital. Tier two capital includes certain capital instruments and subordinated loans, which are harder to liquidate than tier one. Capital tier two instruments must be wholly subordinated to the claims of all non-subordinated creditors. A bank's total capital is the sum of its tier one and tier two capital. Minimum capital ratios. Banks must hold minimum levels of capital relative to their RWAs. Under Basel III, banks must hold a minimum CET1 of 4.5% of its risk-weighted assets. Total tier one capital should be at least 6% of RWAs. This could be entirely composed of CET1 but usually includes some additional tier one capital. Total capital or the sum of CET1, AT1 and T2 must be at least 8% of a bank's RWA. Capital buffers were introduced under Basel III to mitigate the risks associated with the pro-cyclical nature of lending to customers and technically are considered separate from minimum capital requirements. The capital conversion buffer or CCB is designed to build a bank's capital outside times of stress. It is comprised of CET1 and must be at least 2.5% of RWA.

A bank may face restrictions on capital distributions and executive bonuses should the CCB fall to below 2.5% of CET1.