What is Primary capital ratio?

The primary capital ratio, often referred to as the Tier 1 capital ratio, measures a bank's core equity capital relative to its total risk-weighted assets. It is a key indicator of a bank's financial strength and stability, reflecting its ability to absorb losses while maintaining operations. A higher primary capital ratio indicates a stronger capital position, which is crucial for regulatory compliance and maintaining investor confidence. Regulatory bodies, such as the Basel Committee, set minimum requirements for this ratio to ensure the safety and soundness of financial institutions.