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 that gives comfort to the bank’s creditors — in particular, its [[depositor]]s — that their debts will be met, and deposits withdrawals honoured.
+{{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 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.
+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.
-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.
+==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]]”.
-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.
+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.
-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]]”.
+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]]”.
-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 AT1 investors, didn’t fabulously understand how they worked.
-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]]==
 ===[[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.