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Tier 1 capital: Difference between revisions
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{{aai|crr|{{image|CS tier 1 chart|png|[[Lucky]]’s CET1 and AT1 compared since issue, yesterday.}}}}Of a regulated financial institution, the capital level below everything else | {{aai|crr|{{image|CS tier 1 chart|png|[[Lucky]]’s CET1 and AT1 compared since issue, yesterday.}}}}Of a regulated financial institution, the capital level below everything else that gives comfort to the bank’s creditors — in particular, its [[depositor]]s — that their debts will be met, and deposits 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 pedantic financial analysts get annoyed if you say “hold”, for the pedantic reason that tier 1 capital ISA function of the difference between your assets and liabilities, and isn’t something you “hold”, as such. | |||
Less pedantic types feel that since you have to monitor it every cday and do something about it if it isn't there, like issuing more tier 1 capital securities, this isn’t really a distinction worth getting her up about. | |||
===Types of tier 1 capital=== | |||
What are tier 1 capital securities, then? | |||
The most obvious type are institution’s ordinary shares. These are known, by the same people who called coronavirus “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 councils of bank regulators and [[bank resolution and recovery regime]]s, in the process of savagely increasing bank tier one capital requirements, conceded there could be a layer of that 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 ever simultaneously get down again so this was a largely academic issue, but it is 2023 and here we all are. Again. | |||
Anyway, that layer of quasi common equity became better known as [[alternative tier 1 capital|“alternative” tier 1 capita]], or “[[AT1]]”, or which when spoken sounds like “[[eighty-one]]”. | |||
AT1 takes the form of subordinated debt which the issuer may, but need not, call after a few years and is, as such, from an investor’s perspective, theoretically perpetual. In certain disasters scenarios it is also convertible into ordinary shares of the issue, or even capable of being written off altogether. [[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). | |||
==[[Alternative tier 1 capital]]== | ==[[Alternative tier 1 capital]]== | ||
===[[Debit Suisse]] and the irate bondholders=== | ===[[Debit Suisse]] and the irate bondholders=== | ||