Common Equity Tier 1 (CET1) is a component of Tier 1 capital that is mostly common stock held by a bank or other financial institution. It is a capital measure introduced in 2014 as a precautionary means to protect the economy from a financial crisis, largely in the context of the European banking system. The purpose of CET1 is to ensure that banks have enough high-quality capital available to absorb losses during difficult times so that they can continue lending money and supporting economic growth.Banks are required to maintain CET1 levels above certain thresholds, and regulators can take action if they fall below these levels. This helps ensure that banks are sufficiently well-capitalized and less likely to fail, which would create instability in the financial system and harm the overall economy.Critics argue that CET1 requirements are too onerous and could cause banks to reduce their lending activity, which would slow down economic growth. However, supporters say that these measures are necessary to prevent another banking crisis like we saw in 2008-2009. In my opinion, Common Equity Tier 1 (CET1) is an important tool for ensuring stability in our banking system and protecting our economy from future crises.
