From the Collaborative Bond and Money Market Data Portal
Definition: Additional Tier 1 (AT1) bonds are perpetual hybrid debt instruments issued by financial institutions (FIGs) to meet Basel III regulatory capital requirements. They sit at the bottom of the debt capital stack, just above common equity, and are designed to act as a financial shock absorber: if the bank runs into a major crisis, these bonds are cancelled or turned into shares to keep the bank from collapsing, ensuring investors take the hit instead of taxpayers.
European banking regulation requires that Additional Tier 1 instruments cannot be called for the first 5 years after issuance, so the minimum “non‑call” period acceptable to European regulators is 5 years from issue date. The key reference is Article 52(1)(i) CRR, as interpreted in EBA Q&A 2020_5147, which states that the first call of an AT1 instrument may not occur before five years from the date of issuance. After that first 5‑year non‑call period, the CRR does not prescribe the frequency of subsequent call options (e.g. annual, quarterly, or even “continuous” daily calls within a window are permitted, provided permanence criteria in Article 52(1)(g)–(k) are still met).
Data Model: In the CMDportal Collaborative Bond and Money Market Data Model, AT1 instruments appear in the field Ranking with the attribute Subordinated - Tier 1.
“Additional” in Additional Tier 1 (AT1) means “Tier 1 capital that is not common equity Tier 1 (CET1)” – i.e. a separate bucket of going‑concern loss‑absorbing capital that sits in Tier 1 but is not part of the highest‑quality core equity.
Under Basel III, Tier 1 capital is split into:
Common Equity Tier 1 (CET1): ordinary shares, retained earnings, etc., the highest‑quality capital, first to absorb losses.
Additional Tier 1 (AT1): subordinated, perpetual instruments that provide loss absorption on a going‑concern basis but do not meet all CET1 criteria, so they are counted as “additional” to core Tier 1 equity.
AT1 instruments typically:
Are perpetual (no fixed maturity) and deeply subordinated, ranking below Tier 2 and senior creditors but above common equity in liquidation.
Have fully discretionary, non‑cumulative coupons/dividends that can be cancelled without default and usually carry triggers for write‑down or conversion to equity when capital ratios fall below set thresholds.
For regulators, “additional” flags that:
These instruments qualify as Tier 1 but are not as high‑quality as CET1, so there are caps and separate minimum requirements for CET1, AT1 and total Tier 1.
AT1 is meant to absorb losses while the bank is still a going concern, thus bolstering resilience without relying solely on common equity or triggering immediate resolution.
In practice:
“Tier 1” = CET1 + AT1.
“Additional Tier 1” = the non‑CET1 portion of Tier 1, made up of specially structured hybrid instruments (e.g. CoCos) that satisfy Basel III AT1 criteria but fall short of pure common equity.
AT1 significance for bond markets:
Yield and Risk Premium: Due to their deep subordination and the risk of non-cumulative coupon cancellation at the issuer's discretion, AT1s offer higher yields than senior debt, serving as a high-income asset class for institutional investors.
Extension Risk: Since these bonds have no fixed maturity, the market relies on "call dates." If an issuer fails to refinance or "call" the bond when expected, it can cause significant volatility and repricing across the bank's entire credit curve.
Market Sentiment Indicator: The pricing and primary issuance volume of AT1s are often viewed as a barometer for the overall health and "investability" of the banking sector, particularly in the European markets.
For information on the size of the AT1 Market, please use our data sheet tool.
For information on the composition of the AT1 Market, please use our issuer search tool.
For information on active dealers in the AT1 Market, please use our dealer search tool.
For information on active investors in the AT 1 Market, please use our investor search tool.
