Introduction of additional Tier 1 capital

by Thomas Heidorn, Andreas Pottmeyer

The aim of this working paper is to introduce the reader to the relatively new instrument of AT 1 bonds. For this purpose, the strict regulatory requirements for the instrument class are explained and the capital requirements of banks are outlined. Afterwards, the market for AT 1 bonds is analyzed and the interests of the respective market participants are discussed. Finally, the Credit Derivatives Model, the Equity Derivatives Model and the Value at Risk model are applied to 20 AT 1 bonds issued by various European banks in order to find the extra credit spread and to determine the risk associated with this bond class.

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Year of publication:	September 2020
Authors:	Heidorn, Thomas ; Pottmeyer, Andreas
Publisher:	Frankfurt am Main, Germany : Frankfurt School of Finance & Management
Subject:	AT1 \| Additional Tier 1 \| Regulatory Requirements \| Bank Capital Management \| Capital Buffer \| Capital Requirements Regulation (CRR) \| Capital Requirements Directive IV \| Hybrid Tier 1 \| Pillar 1 Requirements \| Basler Akkord \| Basel Accord \| Kapitalbedarf \| Capital requirements \| Bankenliquidität \| Bank liquidity \| Bankenregulierung \| Bank regulation