The term tier 1 capital ratio refers to the ratio of a bank’s tier 1 or core capital. Financial institutions must meet a certain ratio to ensure their financial stability. Tier 1 capital is the minimum amount that a bank must hold in its reserves to finance its banking activities. This ratio measures a bank’s core equity capital against its total risk-weighted assets. Tier 1 capital is comprised of a bank's common stock, retained earnings, accumulated other comprehensive income (AOCI), noncumulative perpetual preferred stock, and any regulatory adjustments to those accounts.