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Introduction of additional Tier 1 capital

Author

Listed:
  • Heidorn, Thomas
  • Pottmeyer, Andreas

Abstract

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.

Suggested Citation

  • Heidorn, Thomas & Pottmeyer, Andreas, 2020. "Introduction of additional Tier 1 capital," Frankfurt School - Working Paper Series 229, Frankfurt School of Finance and Management.
    • Handle: RePEc:zbw:fsfmwp:229
    as

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    References listed on IDEAS

    as
    1. Avdjiev, Stefan & Bogdanova, Bilyana & Bolton, Patrick & Jiang, Wei & Kartasheva, Anastasia, 2020. "CoCo issuance and bank fragility," Journal of Financial Economics, Elsevier, vol. 138(3), pages 593-613.
    2. Martijn A. Boermans & Sweder van Wijnbergen, 2018. "Contingent convertible bonds: Who invests in European CoCos?," Applied Economics Letters, Taylor & Francis Journals, vol. 25(4), pages 234-238, February.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    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;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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