Creditor hierarchy

Definition

The creditor hierarchy is the statutory ranking of a bank's capital and liabilities that fixes the order in which they absorb losses: equity first, then AT1, Tier 2, other subordinated debt, senior non-preferred, and ordinary senior claims.

The waterfall

Both insolvency and resolution allocate losses class by class: no class bears loss until the classes below it are exhausted, and creditors within a class rank equally. In resolution the sequence is prescribed by Article 48 BRRD — Common Equity Tier 1 is written down first, then Additional Tier 1, then Tier 2, then subordinated debt, then senior non-preferred, and only then ordinary senior liabilities, with covered deposits and secured claims such as covered bonds excluded altogether.

Why it anchors everything

The hierarchy is the reference for the no-creditor-worse-off safeguard, the reason MREL carries subordination requirements, and the pricing logic behind every seniority class in this database. Its partial harmonisation — Directive (EU) 2017/2399 created the senior non-preferred layer, but depositor preference details still differ by member state — remains one of the open issues in the CMDI reform debate.

Loss absorptionlosses flow downwards ↓

CET1 — equityabsorbed first

Additional Tier 1AT1Perpetual; first debt layer written down or converted

Tier 2T2Subordinated; absorbs losses after AT1

Senior Non-PreferredSNPStatutory bail-in layer created for MREL

Senior PreferredSPOrdinary senior unsecured; bail-inable in extremis

Covered bonds & securedCOVExcluded from bail-in; backed by cover pool

Covered deposits≤€100kProtected by DGS; never bailed in

Creditor hierarchy under BRRD — bail-in order (simplified)Art. 48 BRRD