Additional tier-1 (AT-1) securities are hybrid instruments that rank between common equity tier-1 (CET-1) and subordinated debt (tier 2). Banks are required to fulfill a minimum capital requirement of a certain percentage (1.5%) of risk-weighted assets (RWA) in AT-1 in addition to an add-on to meet the pillar 2 requirement (P2R).
In general, the AT-1 buffer requirement amounts to less than 2%. However, as a percentage it usually varies from bank to bank.
Tier-1 is a subordinated debt instrument in which holders are entitled to be repaid prior to shareholders but after all other types of debt holders. These instruments are subject to the so-called coupon risk (specific risk of coupon non-payment) as well as principal write-downs under certain circumstances.
