A layer of capital (for a bank or financial institution) consisting of items such as revaluation reserves, subordinated debt, hybrid instruments (hybrids/ hybrid capital instruments). Generally, this component of capital includes such sources of capital that do not appear on a bank’s balance sheet.

Tier-2 capital provides an additional source of capital whereby a regulated institution can meet its regulatory requirements in case its core capital (tier-1 capital) falls short of being up to such requirements. This part of capital consists of capital instruments (known as tier-2 capital instruments) that meet the criteria for tier 2 capital and related surplus, additional eligible minority interest, eligible loan loss provisions and regulatory adjustments.

According to Basel III, tier-2 capital, in addition to CET1 and additional tier-1 capital (AT1) must exceed a minimum of 8%.

It is also known as a supplementary capital.