CRR Tier 2 Bonds

Abstract

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).