02.Available Own Funds: CET1, AT1, Tier 2
Bank capital is not one thing
Capital, Common Equity Tier 1, Tier 1, Tier 2
It is made by three layers, each with a different job.
Common Equity Tier 1 is the part that matters most. Ordinary equity, retained earnings, Other Comprehensive Income, minus deductions like Deferred Tax Assets and own shareholdings. Always available, first to absorb losses.
Additional Tier 1 is the contingent layer. Convertible bonds that flip from debt to equity when CET1 drops below a contractual trigger. Coupons can be cancelled at the bank discretion without triggering default.
Tier 2 is subordinated debt. It only kicks in when the bank is defaulted.
The hierarchy matters because the capital ratio depends on which layer you look at: CET1 ratio, Tier 1 ratio, Total Capital ratio. Same balance sheet, three different numbers. Swipe through for the full breakdown.