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{{aai|crr|{{image|CS tier 1 chart|png|[[Lucky]]’s CET1 and AT1 compared since issue, yesterday.}}}} | {{aai|crr|{{image|CS tier 1 chart|png|[[Lucky]]’s CET1 and AT1 compared since issue, yesterday.}}}}{{dpn|/tɪə wʌn ˈkæpɪtl/|n|}} | ||
If you are a regulated financial institution (a bank) — but ''only'' if you are one of those— you must “hold” a certain percentage of tier 1 capital, though | Of a regulated [[financial institution]], the capital level below everything else that gives comfort to the bank’s creditors — in particular, its depositors — that their debts will be met and deposit withdrawals honoured. | ||
If you are a regulated financial institution (a bank) — but ''only'' if you are one of those— you must “hold” a certain percentage of tier 1 capital, though a certain type of financial analysts get annoyed if you say “hold”, for the pedantic reason that tier 1 capital is a really just what is left of your assets after you deduct your liabilities, and isn’t something you “hold”, as such. | |||
Less pedantic types feel that since you have to monitor it every day, and do something, like issuing more tier 1 capital securities, if it isn’t there, this isn’t really a distinction worth getting het up about. | |||
What are tier 1 capital securities, then? | What are tier 1 capital securities, then? | ||
The | ==Tier 1 common equity== | ||
The classic tier 1 capital is the institution’s ordinary share capital. This is known, by the same people who know coronavirus as “COVID-19”, as “[[tier 1 common equity]]”, or “[[CET1]]”. | |||
Until 2008, that is all there really was Then the [[global financial crisis]] happened, and the world’s various bank regulator committees, councils and forums got together, promulgated largely coordinated set of [[bank resolution and recovery regime]]s, in the process savagely increasing tier one capital requirements with which banks had to comply. | |||
==[[Alternative tier 1 capital]]== | |||
When banks complained — equity capital is quite the drag on performance — the committees conceded there could be a layer of tuer 1 which wasn’t ''actually'' common equity, but could be made to ''behave'' like it if a bank’s chips ever got really down. | |||
We suspect everyone thought that a large number of banks’ chips would not simultaneously get down again, so this was a largely academic issue — but it is March 2023 and here we all are. Again. | |||
Anyway, this new layer of quasi common equity came to be known as [[alternative tier 1 capital|“alternative” tier 1 capita]], or “[[AT1]]” which, when said out loud, sounds like “[[eighty-one]]”. | |||
AT1 capital takes the form of [[subordinated]] debt which the issuer may, but need not, call after a few years, As such, from an investor’s perspective, it is as theoretically ''perpetual'' as ordinary shares are. | |||
In certain disaster scenarios it is also ''convertible'' into ordinary shares, at which point it ''becomes'' [[CET1]], or may even be written off altogether. Conversions and write-downs are “contingent” on defined events, like capital thresholds being breached — ''[[der Teufel mag im Detail stecken]]'' to the max — so AT1s are also called “[[contingent convertible securities]]” or “[[co-cos]]”. | |||
It became clear in March 2023 when [[Credit Suisse]] finally gave up the ghost, that many in the market, including AT1 investors, didn’t fabulously understand how they worked. | |||
===[[Debit Suisse]] and the irate bondholders=== | ===[[Debit Suisse]] and the irate bondholders=== | ||
Famously, in that panicked Spring weekend in 2023 when it slipped into history<ref>We have a sense [[Credit Suisse]]’s history is not done just yet but that, like Disaster Area frontman Hotblack Desiato, it is merely spending a year dead for tax (and, er regulatory capital) purposes. It may well be back, at least as a high-street banking brand in Switzerland.</ref> the “trinity” of Swiss regulators put a gun to UBS’s head, forced it to make an honest bank of [[Credit Suisse]] in a process in which it absorbed [[Lucky]]’s equity, and the jewels and hellish instruments of madness and torture secreted around its balance sheet — ''other'' than its AT1s. The regulators instead, by ordinance, directed [[Credit Suisse|Lucky]] to write down its to zero. | Famously, in that panicked Spring weekend in 2023 when it slipped into history<ref>We have a sense [[Credit Suisse]]’s history is not done just yet but that, like Disaster Area frontman Hotblack Desiato, it is merely spending a year dead for tax (and, er regulatory capital) purposes. It may well be back, at least as a high-street banking brand in Switzerland.</ref> the “trinity” of Swiss regulators put a gun to UBS’s head, forced it to make an honest bank of [[Credit Suisse]] in a process in which it absorbed [[Lucky]]’s equity, and the jewels and hellish instruments of madness and torture secreted around its balance sheet — ''other'' than its AT1s. The regulators instead, by ordinance, directed [[Credit Suisse|Lucky]] to write down its to zero. |