An instrument (capital instrument) that belongs to a bank’s common equity tier 1 capital (CET-1). It is any share, note or other security that constitutes tier 1 capital (T-1 capital). CET-1 is the highest grade of a bank’s regulatory capital, as it has the ability to absorb losses instantly as/ when they arise. It is the sum of common shares (or its equivalent), stock surplus, retained earnings, other comprehensive income (OCI), qualifying non-controlling interests and regulatory adjustments.

Tier-1 capital instruments include common shares (portions of ownership in the bank, with the highest level of loss absorption capacity), perpetual non-cumulative preference shares (these shares pay a fixed dividend but do not accumulate unpaid dividends if not distributed), and contingent convertible bonds (CoCos) (bonds that automatically convert into equity or are written off when certain trigger events occur, such as a drop in the bank’s capital ratio). Tier-1 capital instruments may also include those related to retained earnings (profits that are reinvested into the bank, contributing to its capital base).

It is also known as CET-1 instrument or common equity tier-1 instrument.