Regulators set a minimum common equity tier 1 ratio, with buffers on top, and a bank below its requirement faces restrictions on dividend payments and buybacks before it faces anything worse.
The denominator is risk-weighted, so assets are scaled by assumed riskiness: government bonds near zero, mortgages lightly, unsecured corporate lending fully. That weighting is where much of the argument about bank safety actually lives.
Example: Meridian Savings Bank holds $780M of common equity tier 1 against $6.1B of risk-weighted assets, a 12.8% ratio, comfortably above its 8.5% requirement including buffers.
Related: net-interest-margin, tangible-book-value, loan-loss-provision, shareholders-equity, capital-allocation