Common equity tier 1 capital ratio at HSBC 2013-2023
In 2023, the common equity tier 1 (CET1) capital ratio of HSBC increased in comparison to the previous year. The ratio declined for the third consecutive year in 2022, and that year, the decrease was quite notable too. The CET1 capital ratio of HSBC reached a peak value of 15.9 percent in 2020 and remained similarly high - with a slight drop - in 2021 and 2022. In 2023, however, the ratio increased to 14.8 percent. Despite the decrease over the last few years, the CET1 ratio of HSBC remained 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.
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.
