Additional Tier 1 capital

Indian Economy glossary

Also called: AT1 capital · Topic: Banking Regulation, NPAs and Financial Stability · NCERT: Beyond NCERT

Meaning

Additional Tier 1 (AT1) capital is the second layer of a bank's Tier 1 capital, after Common Equity Tier 1 (CET1). It consists of perpetual, non-cumulative instruments such as AT1 bonds.

  • Perpetual means they have no maturity date.
  • Non-cumulative means that if the bank skips a coupon (interest payment), the missed payment is never paid later.

AT1 is going-concern capital, which means it absorbs losses while the bank keeps running. It does this through a write-down, where its value is cut, or a conversion into equity. This happens if CET1 falls below a set trigger or the bank reaches the point of non-viability. That is why AT1 is called a contractual bail-in.

Example

In Yes Bank's rescue (2020), its AT1 bonds were written down, and bondholders lost their money. Credit Suisse (2023) saw a similar AT1 write-down.

Don't confuse with

  • Tier 2 capital: this includes subordinated debt and some provisions. It absorbs losses mainly when a bank is wound up, so it is gone-concern capital. AT1 absorbs losses while the bank is still running.
  • CET1: this is common shares and reserves, the highest-quality capital. AT1 ranks below it in quality.

Related concepts

Read more