Items that qualify as T2 financial instruments provide loss absorption as ‘gone-concern capital’ when the issuer is facing bankruptcy. Then, holders of such instruments will carry the burden of financial losses to a greater extent than other senior creditors. That is why T2 items constitute a category of own funds. Simultaneously, these instruments pose less equity-like features in terms of maturity and deferral. It is worth noting that T2 capital may consist of a broader list of items than AT1: subordinated loans are also potentially T2-eligible, and – to some extent and in specified circumstances – general credit risk adjustments, gross of tax effects or positive amounts and gross of tax effects resulting from the calculation of expected loss amounts (Article 62 CRR).
KeywordsCoupon Payment Broad List Resolution Authority Hybrid Security Senior Debt
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