'Tier 1' commonly refers to the class of capital a bank must have to sustain its operations and remain resilient throughout tough economic times. Whereas Tier 2 capital is considered less reliable and consists of such things as revaluation reserves, hybrid capital investruments, subordinated term debt, general loan-loss reserves and undisclosed reserves, Tier 1 capital is the bank's core capital comprising equity capital as well as disclosed reserves (that appear on the balance sheet).

The Basel accords gave rise to these distinctions, recognising the need to sure up and assess the capitalizations of these preeminent institutions. Australian banks are generally well-capitalized by international standards and APRA in 2017 set the minimum CET1 (Commercial Equity Tier 1) capital requirement at 10.5%.

Requirements for strengthened capitalization have provided institutional and sophisticated investors greater opportunities to invest in the banks. As with all investments, professional advice should be sought and due diligence undertaken in relation to such matters.

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