The sum of a bank's tier 1 and tier 2 capital. The capital rule requires it to be at least 8 percent of the bank's risk-weighted assets.
Total risk-based capital is the widest measure of a bank’s capital under the capital rule: tier 1 capital plus tier 2 capital. Tier 2 holds items that absorb losses after tier 1 does. The main ones are instruments that rank behind depositors and general creditors and have an original maturity of at least five years, plus the loan loss allowance up to 1.25 percent of risk-weighted assets. A bank must keep total capital of at least 8 percent of risk-weighted assets.
A borrower meets this figure indirectly. The 2006 interagency guidance on commercial real estate measures a bank’s construction and investor real estate loans against total risk-based capital, as reported on Call Report Schedule RC-R. The real estate lending guidelines say loans above the supervisory loan-to-value limits should not exceed 100 percent of total capital in aggregate. When a banker says the bank is full on construction, or cannot go above a set loan-to-value on your deal, a ratio against this number is often the reason.
Credit unions do not report it. Their capital measure is net worth.
How it shows up in the data here
Total risk-based capital is not loaded here. The capital figure this site uses for banks is tier 1 capital plus the allowance, from the Call Report. So the CRE to capital and construction to capital figures on a bank page are our calculation on that base, not the ratios in the 2006 interagency guidance, which divide by total risk-based capital. The methodology page sets out each formula.
Go further
- Methodology: How each capital-based figure on a lender page is worked out.
- Data dictionary: The capital fields this site loads.
- The CRE concentration guidance, explained: Bank regulators watch how much commercial real estate a bank holds against its capital. The guidance sets two screens. It does not set a limit, and it does not count owner-occupied buildings.
- Supervisory loan to value limits and HVCRE, explained: Two federal rules shape how much a bank will lend against real estate: a table of loan to value ceilings, and a capital rule that makes some construction loans cost the bank more to hold.
- How to read a bank call report as a loan searcher: Every bank files a call report each quarter. One schedule in it lists the bank's loans by kind. Read that schedule and you know what the bank holds. You still do not know what it made last quarter.
Related terms
- Tier 1 capital: A bank's core capital under the capital rule: common equity tier 1 plus additional tier 1. The minimums are 6 percent of risk-weighted assets and a 4 percent leverage ratio.
- Allowance for credit losses: The reserve a lender builds through charges against earnings for the loan losses it expects, which brings the loans on its books down to the amount it expects to collect.
- Capital and surplus: The capital base a national bank's lending limit is measured against: tier 1 and tier 2 capital plus the part of the loan loss allowance that tier 2 leaves out.
- CRE concentration: A bank's commercial real estate loans measured against its capital. Federal guidance from 2006 flags 300 percent of total capital, with 50 percent growth in 36 months, for closer review.
- Supervisory LTV limits: Loan-to-value ceilings in the federal real estate lending guidelines, from 65 percent for raw land to 85 percent for improved property, that a bank's own limits should not exceed.
- Call report: The financial report every bank and savings association files with its federal regulator each quarter, with a balance sheet, an income statement and schedules that break out loans by kind.
Sources
- 12 CFR 324.2, capital rule definitions, retrieved .
- 12 CFR 324.10, minimum capital requirements, retrieved .
- 12 CFR 324.20, capital components and eligibility criteria, retrieved .
- 12 CFR Part 365, Subpart A, Appendix A, Interagency Guidelines for Real Estate Lending Policies, retrieved .
- Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices, 71 FR 74580, published .
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.