hard · Debt Capital Markets
In the context of bank capital, why is an Additional Tier 1 (AT1) bond considered 'going-concern' capital whereas a Tier 2 bond is 'gone-concern' capital?
- AT1s contain triggers for principal write-down or equity conversion while the bank is still operating; Tier 2s only absorb losses at the point of non-viability.
- Going-concern capital refers to instruments that have a fixed maturity date, which applies to AT1s but not Tier 2s.
- AT1s are senior to Tier 2 bonds in the capital stack, providing more protection during normal operations.
- Tier 2 bonds allow for the suspension of interest payments during a crisis, whereas AT1 coupons are mandatory.
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