According to Basel II what constitutes Tier 1 capital?

Under Basel II, Tier 1 capital, also known as core capital, includes:

Equity Capital: This includes common stock and retained earnings. It is the highest quality of capital because it is fully available to cover losses.

Accrued Profits to Reserves: Profits that are retained and not distributed as dividends are added to reserves, increasing the bank's capital base.

This combination of equity capital and retained earnings ensures that Tier 1 capital is robust and able to absorb significant losses, thereby providing a strong financial cushion.