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AT-1 bonds are conceptually flawed Banking on trust   -  istock.com/× Equity is the best way to shore up banks’ capital. AT-1 bonds are pro-cyclical and can lead to systemic failures After the 2008 global financial crisis, the Bank for International Settlement (BIS) identified higher capital adequacy for banks as an important means to prevent systemic crisis. Under the Basel III norms, banks are required to have higher capital relative to the size of their risk weighed assets. The complex Basel III framework allows instruments/money other than equity (Tier I) to also be counted as capital (under Tier II & Tier III), subject to conditions. Perpetual, Non-Cumulative Preference Shares and Perpetual Debt Instruments, also known as Additional Tier I or AT-1 bonds, emerged as instruments to shore up Tier I capital of banks.

International settlementNon cumulative preference sharesPerpetual debt instrumentsPension fundsAt1 bondsBank equityBank recapBasel normsGlobal financial crisisசர்வதேச தீர்வுநிரந்தர கடன் கருவிகள்ஓய்வூதியம் நிதிவங்கி பங்குவங்கி ரீக்யாப்பேசல் நியமங்கள்உலகளாவிய நிதி நெருக்கடி