What is primary bank capital?

Primary bank capital, also known as Tier 1 capital, refers to the core capital that banks hold, consisting primarily of common equity and retained earnings. It serves as a financial buffer to absorb losses and is critical for maintaining the bank's solvency and stability. Regulatory frameworks, such as Basel III, set minimum requirements for Tier 1 capital to ensure banks can withstand economic shocks and protect depositors. This capital is essential for a bank's operations and growth, as it underpins lending and investment activities.