A component of a regulatory capital that possesses the characteristics of both equity and debt. As equity capital (core capital) has the features of ordinary equity (ordinary shares, common stock), both voting and non-voting, and preferred shares/ preference shares as well as debt-like convertible or hybrid financial instruments (with a feature of conversion into equity). For example, a specific type of hybrid may pay a regular dividends based on a par value (like a coupon), but may be considered equity for regulatory purposes, having the ability to absorb unexpected losses.

Overall, capital instruments consist of an unlimited amount of equity (core capital) and a limited amount of other instruments- i.e., certain types of financial instruments (hybrid capital instruments or simply, hybrids). Hybrid capital instruments– also referred to as innovative capital– can be part of tier 1 but are usually limited to a certain percentage (e.g., 15%) of total tier 1 capital for individual institutions. Debt-like hybrids can also be part of tier 2 if these instruments are subordinated. Tier 3 capital accounts for market, foreign exchange and commodity risk, and does not usually contain hybrids.

Capital instruments imply total capital instruments (i.e., tier 1 and tier 2 capital instruments).