Tier 2 Capital

Tier 2 Capital, also known as supplementary capital, is the secondary layer of a bank's regulatory capital, primarily designed to absorb losses in the event of a bank's liquidation after Tier 1 Capital has been exhausted, thereby ensuring the institution can meet its obligations to depositors and general creditors. Under the Basel III framework, Tier 2 instruments must be fully subordinated to depositors and general creditors and must include a mechanism for loss absorption, such as conversion to equity or write-down, at the point of non-viability (PONV).