CRR (Capital Requirements Regulation)The Capital Requirements Regulation, Regulation (EU) No 575/2013, sets the directly applicable EU rules on own funds, capital requirements, liquidity, leverage, large exposures, reporting and disclosure for banks and investment firms. It applies the Basel standards across the single market.
CET1 (Common Equity Tier 1)Common Equity Tier 1 is the highest quality layer of a bank's own funds: ordinary shares, share premium, retained earnings and other reserves, minus regulatory deductions. The CET1 ratio divides it by risk-weighted assets and must be at least 4.5% under the CRR, before buffers and Pillar 2.
Additional Tier 1 (AT1)Additional Tier 1 capital consists of perpetual instruments that absorb losses while the bank is still a going concern, through conversion into shares or a write-down when CET1 falls below a trigger. Together with CET1 it forms Tier 1 capital. AT1 bonds are also called contingent convertibles or CoCos.
Tier 2 capitalTier 2 capital is gone-concern capital, mainly subordinated debt with an original maturity of at least five years, which absorbs losses if a bank fails. Its recognition amortises in the final five years before maturity. Tier 1 plus Tier 2 gives total capital, or own funds.