Credit glossary

What is a Tier 2 Capital?

Dated subordinated debt that qualifies as regulatory capital, ranking above AT1/RT1 but below senior debt.

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Definition

Tier 2 Capital

Dated subordinated debt that qualifies as regulatory capital, ranking above AT1/RT1 but below senior debt.

Example

How it works in practice

A bank issues a 10-year subordinated bond that qualifies as Tier 2 capital under Basel III. If the bank fails and enters resolution, Tier 2 instruments absorb losses after equity and AT1 have been fully written down but before senior unsecured creditors are affected. The bond cannot defer coupons during normal operations, unlike AT1 instruments.

Related terms

Related glossary entries

Hybrid CapitalCredit Aggregation RiskCyber Binary TriggerILS Calculation AgentILS Cat BondILS CollateralILS

Full glossary — 91 terms

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A B C D E G H I L M N O P R S T V W Z

A

Aggregation RiskCyber ARC (African Risk Capacity)ILS AT1 (Additional Tier 1)Credit Attachment PointILS

B

Basis RiskILS Binary TriggerILS

C

Calculation AgentILS Cat BondILS Catastrophe ModelRisk Modelling CCRIF (Caribbean Catastrophe Risk Insurance Facility)ILS CedantReinsurance CoCo (Contingent Convertible)Credit CollateralILS Collateralised ReinsuranceILS Conditional Expected Loss (CEL)ILS CorrelationILS CouponILS Coupon DeferralCredit Cyber Cat BondCyber

D

DDoS AttackCyber DiversificationILS Due DiligenceILS

E

ESGILS Exhaustion PointILS Expected Loss (EL)ILS Expense LoadILS ExposureGeneral Insurance Extension RiskILS

G

GDPRCyber Green Cat BondILS

H

Hazard ModuleRisk Modelling HIM SeasonILS Hybrid CapitalCredit

I

IBRD (International Bank for Reconstruction and Development)ILS ILW (Industry Loss Warranty)Reinsurance Indemnity TriggerILS Industry Loss Index TriggerILS

L

Loss Exceedance CurveRisk Modelling

M

Mark-to-MarketILS Mark-to-ModelILS MaturityILS MEL (Multiple of Expected Loss)ILS Modelled Loss TriggerILS Moral HazardGeneral Insurance

N

Net Risk Multiple (NRM)ILS New Issue ConcessionILS NIST CSFCyber NotchingCredit

O

OAS (Option-Adjusted Spread)Credit Offering CircularILS

P

Parametric TriggerILS PCS (Property Claims Services)ILS Peak PerilILS PerilGeneral Insurance PERILS AGILS PremiumGeneral Insurance Probability of First Loss (PFL)ILS Probable Maximum Loss (PML)Risk Modelling Proportional PayoutILS

R

RansomwareCyber Reg SILS ReinsuranceReinsurance Resilience BondILS RetrocessionReinsurance Return PeriodRisk Modelling Risk LoadILS Risk-Free RateCredit RoadshowILS RT1 (Restricted Tier 1)Credit Rule 144AILS

S

SCR (Solvency Capital Requirement)General Insurance SeasonalityILS Secondary MarketILS Sharpe RatioILS SidecarILS Silent CyberCyber SOFRILS Solvency IIGeneral Insurance Special Purpose Vehicle (SPV)ILS SpreadILS Structuring AgentILS Subordinated DebtCredit Supply Chain AttackCyber

T

Tier 2 CapitalCredit Total Return SwapILS TrancheILS

V

Vulnerability ModuleRisk Modelling

W

Wang TransformRisk Modelling War ExclusionCyber Write-DownCredit

Z

Z-SpreadCredit

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