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In 2024, HSBC's Common Equity Tier 1 (CET1) capital ratio increased for the second consecutive year. This followed a three-year decline prior to 2023. The bank's CET1 ratio had peaked at 15.9 percent in 2020 and remained relatively high, though slightly lower, in both 2021 and 2022. Despite the decreases during those years, HSBC’s CET1 ratio consistently stayed well above the European average.

What is the tier 1 capital ratio?

Tier 1 capital is essentially the amount of money a bank has on hand in case it needs to cover unexpected expenses from risky transactions. Core capital is mostly the combination of retained earnings and common stock. This statistic reports the value of this common stock against risk divided by the risk-weighted total of HSBC’s assets. This is important because losses in these assets or a sudden uptick in withdrawals can easily be covered by tier 1 capital, making this a measure of a bank’s robustness.

The importance of core capital 

Banks keep core capital to guard against unexpected expenses. In the very short run, commercial banks can also borrow from the central bank’s discount window for a low interest rate. In the United States, this is the federal funds rate. Without such reserves and financing options, a run on deposits or a large default on assets can lead to insolvencies.