Capital is the most important item that a financial institution can have, in the midst of what some pundits have called the worst financial environment since the Great Depression. So how does the government measure that capital relative to the risk that a Bank assumes when it conducts its business of making loans? Here are a few measures:
Tier 1 leverage ratio – This is calculated as the amount of Tier 1 Capital as a percent of average total assets.
Tier 1 risk-based capital ratio – This is calculated as the amount of Tier One Capital as a percent of total risk weighted assets.
Total risk-based capital ratio – This is calculated as the amount of Tier 1,2 and 3 Capital as a percent of total risk weighted assets.
You can find out these ratios by going to the FDIC website here:
http://www4.fdic.gov/idasp/main.asp
Enter the name of your bank. Sometimes it’s not that easy to find the bank you want because the holding company bank will have a slightly different name than the one you are investing in. Verify it by looking at the address listed.
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