Common equity

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Banking - capital adequacy.

A bank's common equity is its ordinary share capital and certain accounting reserves including retained profits.

For bank capital adequacy purposes, certain items are excluded from the calculation of common equity.

The excluded items include amounts which would be difficult for the bank to realise under stressed conditions, for example intangible assets and most deferred tax assets.

Basel III raises the minimum level, after all deductions, to 4.5% of risk weighted assets.

Together with the Capital Conservation Buffer of 2.5%, the minimum total common equity standard becomes 7%.

See also