Tier 1 capital
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Regulatory Capital Anatomy™
The JC’s untutored thoughts on how bank capital works. From our machine overlords Here is what, NiGEL, our cheeky little GPT3 chatbot had to say when asked to explain:
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Of a regulated financial institution, the capital level below everything else than gives comfort to the creditors — in particular, its depositors — that those debts will be met. The most obvious type of tier one capital is the institution’s share capital — “tier 1 common equity”. But also is alternative tier 1 capital, also known as AT1, eighty-one, which takes the form of contingent convertible securities (“co-cos”). It became clear in March 2023 when Credit Suisse finally gave up the ghost, that many in the market, including its AT1 investors, didn’t fabulously understand how it worked. (In fairness to them, it wasn’t obvious, even though it was written into the terms and even the title of the AT1 Notes).
Debit Suisse and the irate bondholders
Famously, in a panicked weekend when it slipped into history[1] the Swiss trinity of regulators put a gun to UBS’s head, forced it into a marriage in which it absorbed Credit Suisse and all its friends, relations, and its (and their) hellish instruments of madness and torture secreted around its balance sheet other than its Perpetual Tier 1 Contingent Write-Down Capital Notes, which the regulators directed it to, well, write down. To zero.
See also
- ↑ 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.