Common equity is the amount that all common
shareholder
A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal ...
s have invested in a company. Most importantly, this includes the value of the
common shares
Common stock is a form of corporate equity ownership, a type of security. The terms voting share and ordinary share are also used frequently outside of the United States. They are known as equity shares or ordinary shares in the UK and other Com ...
themselves. However, it also includes
retained earnings
The retained earnings (also known as plowback) of a corporation is the accumulated net income of the corporation that is retained by the corporation at a particular point of time, such as at the end of the reporting period. At the end of that per ...
and additional paid-in capital.
Basel III
Under the new
Basel III
Basel III is the third Basel Accord, a framework that sets international standards for bank capital adequacy, stress testing, and liquidity requirements. Augmenting and superseding parts of the Basel II standards, it was developed in response ...
banking agreement large internationally active banks will be required to hold a minimum of 4.5% of their risk-adjusted assets in common equity. This regulation is to be fully effective as of 1 Jan 2019.
In the United States, the
Federal Reserve
The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a ...
has decided that all banks will need to adhere to the standard, with the largest banks required to hold an extra buffer.
[ ]
References
{{reflist
Banking