Tier 2 (T2) · Banking Resolution

Tier 2 (T2)

Definition

Tier 2 instruments are subordinated bank debt with an original maturity of at least five years that counts as gone-concern regulatory capital, absorbing losses after Additional Tier 1 but before senior classes.

Design

Tier 2 is the classic subordinated bond layer of bank capital. The CRR requires an original maturity of at least five years, subordination to all non-own-funds claims, no acceleration rights and no incentives to redeem; recognition as capital amortises daily over the final five years to maturity, which is why banks typically call and refinance T2 at the first opportunity.

Role in the framework

Unlike AT1, Tier 2 has no going-concern trigger: it absorbs losses at the point of non-viability or in resolution, through the write-down and conversion power, after equity and AT1 have been exhausted. In the Banco Popular resolution, Tier 2 was converted into shares that were then transferred to the purchaser. Beyond its capital role, T2 counts towards MREL and its subordinated component.