Additional Tier 1 (AT1)

Definition

Additional Tier 1 instruments are perpetual, deeply subordinated bank securities with discretionary coupons that convert to equity or are written down when the issuer's capital falls below a contractual trigger — the first debt layer to absorb losses.

Design

AT1 instruments — often called contingent convertibles or CoCos — are engineered to absorb losses while the bank is still a going concern. The CRR requires them to be perpetual with no incentive to redeem, callable only with supervisory permission, to pay fully discretionary and non-cumulative coupons, and to carry a mechanism that converts the principal into equity or writes it down when Common Equity Tier 1 falls below a trigger of at least 5.125% of risk-weighted assets.

In resolution

Independently of the contractual trigger, AT1 is written down or converted through the statutory power of Article 59 BRRD when the bank reaches the point of non-viability or enters resolution — immediately after equity and before Tier 2. In the 2017 Banco Popular resolution, AT1 was written down in full.

The Credit Suisse controversy

The 2023 write-down of Credit Suisse's AT1 while shareholders retained value — executed under Swiss emergency powers, outside EU law — prompted the SRB, EBA and ECB to state jointly that in the EU framework equity absorbs losses fully before AT1, reaffirming the hierarchy this class relies on.