Question

Tier I (core) capital includes at least some part of which of the following? I. Common stockholders' equity II. Retained earnings III. Subordinated debt IV. Allowance for loan and lease losses

Answer 1

I. Common stockholders' equity II. Retained earnings

Step-by-step explanation:

Tier 1 capital is a primary indicator of the financial power of a bank from authority's perspective. It is comprised of main assets, consisting primarily of common shares and declared assets, but can also contain un-redeemable un-cumulative preferred shares.

The core parts of equity capital are identified as the tier 1 capital: bonds, non-disposable balance sheets and retained income of shareholders, earned through the bank's lifetime. This reflects the capital sum which enables a bank to bear deficits without impacting depositors ' interest.

Answer 2

I and II only

Step-by-step explanation:

Tier 1 capital is the core measure of a bank's financial strength from a regulator's point of view. It is composed of core capital, which consists primarily of common stock and disclosed reserves (or retained earnings) —that appears on the bank's financial statements, but may also include non-redeemable non-cumulative preferred stock.

Tier 1 capital is the assets the bank holds in its reserves in order to keep it functioning through all the risky transactions it performs, such as trading/investing and lending. Tier 1 capital includes common stock, retained earnings, and preferred stock.

Thus, Tier I (core) capital includes common stockholders' equity and retained earnings among the options.