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Tier 1 capital: Difference between revisions
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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. | 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 | 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, that layer of quasi common equity | Anyway, that layer of quasi common equity came to be 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 | AT1 capital 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''. Like ordinary shares are. In certain disaster scenarios it is also ''convertible'' into ordinary shares, at which point it ''becomes'' [[CET1]] — or even being written off altogether. These are events are “contingent” on certain 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 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=== | ||