BANKING AFFAIRS

Detailed explanation-1: -Tier 1 capital is the primary funding source of the bank. Tier 1 capital consists of shareholders’ equity and retained earnings. Tier 2 capital includes revaluation reserves, hybrid capital instruments and subordinated term debt, general loan-loss reserves, and undisclosed reserves.

Detailed explanation-2: -Tier I capital consists mainly of share capital and disclosed reserves and it is a bank’s highest quality capital because it is fully available to cover losses. Tier II capital on the other hand consists of certain reserves and certain types of subordinated debt.

Detailed explanation-3: -Tier 2 capital is the second layer of capital that a bank must keep as part of its required reserves. This tier is comprised of revaluation reserves, general provisions, subordinated term debt, and hybrid capital instruments. There are two levels of Tier 2 capital-upper level and lower level capital.

Detailed explanation-4: -Tier 1 capital measures the financial strength of a bank, it shows its core capital including equity capital and disclosed reserves. JPMorgan Chase’s tier 1 capital reached 264 billion U.S. dollars during that period. The bank also had the highest tier 1 capital ratio in the United States.

Detailed explanation-5: -The asset portion of a bank’s capital includes cash, government securities, and interest-earning loans (e.g., mortgages, letters of credit, and inter-bank loans). The liabilities section of a bank’s capital includes loan-loss reserves and any debt it owes.