2.4.2.3 Tier 2 capital

Tier 2 capital items consist of (a) capital instruments and subordinated loans where the conditions laid down in Article 63 CRR are met;1 (b) the share premium accounts related to instruments referred to in point (a); and (c) general credit risk adjustments (for banks that apply the so-called ‘Standardised Approach’ to calculate their TREA) or positive amounts (for banks that apply the so-called ‘Internal Ratings Based Approach’ to calculate their TREA).2 Certain deductions have to be applied.3

Pursuant to Article 63 CRR, a list of conditions has to be met in order for capital instruments to qualify as Tier 2. These conditions include, inter alia, that the instruments are issued or the subordinated loans are raised, as applicable, and fully paid-up, the claim on the principal amount of the instruments or the subordinated loans, as applicable, is wholly subordinated to claims of all non-subordinated creditors and the instruments or subordinated loans, as applicable, have an original maturity of at least five years.4