From the Collaborative Bond and Money Market Data Portal
Ranking refers to the order of repayment in the event of a sale or bankruptcy of the issuer. The term seniority is also used. When an Issuer is wound up, each Debt Instrument has a specific seniority or ranking in terms of repayment. Secured debt is paid before senior debt, which is repaid before subordinated debt. Within subordinated debt, Upper Tier 2 gets paid first, followed by Lower Tier 2, followed by Tier 1. Actual ranking will always depend on what it says about this in the relevant bond offering document also known as prospectus.
In theory, after subordinated debt instrument holders have been paid, and if relevant, preference shareholders are followed by ordinary shareholders. Shareholders are for example not relevant in the context of sovereign and sovereign like borrowers. Ranking within the banking sector is very much a function of what regulators allow.
In the Collaborative Bond and Money Market Data Model (MD) the field Ranking, catering for all asset classes, as a result consists of the following attributes:
Secured means there are specific assets, also known as collateral, that secure the repayment of the bonds. For Covered Bonds the DM uses a yes or no BOOL. The Ranking for Covered Bonds is normally shown as Senior.
Senior preferred bonds are higher in the hierarchy compared to senior non-preferred bonds and subordinated bonds. They are not subject to MREL (Minimum Requirement for Own Funds and Eligible Liabilities) or TLAC (Total Loss-Absorbing Capacity) rules and do not have a bail-in procedure, unlike senior non-preferred bonds.
MREL is a regulatory requirement designed to ensure that banks have sufficient loss-absorbing and recapitalization capacity in case of resolution. TLAC is a regulatory requirement designed to ensure that Global Systemically Important Banks (G-SIBs) have sufficient loss-absorbing and recapitalization capacity in case of financial distress or failure.:
Senior – Preferred does not have a built-in "bail-in" procedure, meaning their terms do not include automatic conversion into shares in case of financial distress. The attribute Subordinated - Tier N/A is used when the Subordinated rank is not clear.
Subordinated - Tier 3 (N/A since 1-1-2022)
Tier 3 capital was phased out under Basel III. It consisted of subordinated debt that banks used to cover market, commodities, and foreign currency risks that resulted from trading activities. This type of capital was considered lower quality compared to Tier 1 and Tier 2 capital and was subject to specific limitations, such as not exceeding 2.5 times a bank's Tier 1 capital and having a minimum maturity of two years. The Basel III Accords, introduced in response to the Great Financial Crisis, aimed to strengthen the financial system by improving the quality and quantity of capital held by banks. As part of these reforms, Tier 3 capital was phased out starting January 1, 2013, and completely removed from accounts by January 1, 2022.
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For information on the size of the Senior, Tier 2, or Tier1 Bond Market, please use the data sheet tool.
For information on the composition of the Senior, Tier 2 or Tier1 Bond Market, please use the issuer search tool.
For information on active dealers in the Senior, Tier 2 or Tier1 Market, please use the custom league table or dealer search tool.
