In your fridge, you have the Tier 1 leftovers. The remains of the $65 lamb chops you got when your parents took you out to eat over the weekend. The tiramisu that was supposed to be your sister's take-home dessert, but which you "accidentally" mixed in with your stuff. And then you have the Tier 2 leftovers: the extra spaghetti you made the other day that you plan to eat once you run out of lamb and tiramisu...and the cold pizza you plan to have for breakfast. And then...there's the other stuff. The grey, frost-bitten mystery brick sitting in an unlabeled tupperware container in the back of the freezer.
The assets held by banks can be arranged in a similar fashion. Tier 1 capital is the good stuff. The most solid, most dependable source of funds the bank has. It includes things like common stock and retained earnings.
Measuring the Tier 1 capital gives a good look at a bank's financial health. The more the institution has, the better able it is to survive a difficult time.
