Regulatory capital: RWA, CET1 and distributions
Risk densities, CET1 ratio, buffers, leverage, payouts.
By Surojit Chakraverti, founder of L3VLUP and an investor running a long-short healthcare and technology equities strategy.
On this subject: regulatory capital: rwa, cet1 and distributions.Updated 30 October 2026
What it does
The constraint every other number in a bank model answers to. Each exposure times its risk density gives risk-weighted assets, with operational and market risk on top. CET1 capital (equity less intangibles and other deductions) over RWA is the CET1 ratio, held against a requirement built from the Pillar 1 minimum, a Pillar 2 add-on and the buffers, and against a management target above it. Dividends and buybacks come only from capital above the target; the leverage ratio, blind to risk weights, is the backstop.
Where it lives
The same schedule in each model that carries it, with the rows to open. Open a model in the browser, go to the sheet, and click the lines.
- Assumptions, rows 94–103: Mortgages: risk density, Consumer loans and cards: risk density, Business and commercial loans: risk density, Investment securities: risk density…
- Assumptions, rows 106–116: Pillar 1 minimum CET1, Pillar 2 requirement met with CET1, Capital conservation buffer, Countercyclical buffer…
- Capital, rows 6–28: Exposure: mortgages, Exposure: consumer loans and cards, Exposure: business and commercial loans, Exposure: investment securities…
- Capital, rows 31–40: Net income, CET1 capital before distributions, CET1 ratio before distributions, Distributable capital above the management target…
- Capital, rows 43–50: CET1 requirement including buffers, Management buffer above the requirement, Headroom over the requirement, Headroom over the requirement, $m…
- Capital, rows 53–61: Shares at the start of the year, Opening tangible book value per share, Buyback price, Shares bought back…
What a reviewer looks for
- Dividends set from profit with no test against the capital ratio.
- RWA grown with total assets, so a shift towards mortgages and away from unsecured lending changes nothing.
- Headroom measured against the minimum alone, ignoring the buffers that restrict distributions first.
Learn it, then build it
Vocabulary: Equity Value.