Based on a tier system of levels that´s to classify a financial entity´s capital into different categories depending on the nature of the capital, which in this case is a company´s core equity and (disclosed) reserves. According to the Basel rules, tier 1 capital is actual contributed equity plus retained earnings.

This is typically referred to when talking about the tier 1 capital ratio, which is a comparison between a company´s core capital and risk-weighted assets and provides a measure of a company´s strength or future stability. This ratio can tell us if the amount of capital the company has is enough (adequate) to take on problems with risky assets that may arise due to unforeseen circumstances such as sudden loss or an economic downturn.