What is an AT-1 Bond?

What is an AT-1 Bond?

Additional Tier 1 (AT-1) bonds are a type of unsecured, perpetual debt instrument issued by banks to help meet their core capital requirements under global Basel III norms.

How They Work:

1. Perpetual Nature: They have no maturity date. The bank is not required to ever pay back the principal, though they usually have a “call option” to buy them back after 5 or 10 years.

2. Loss Absorption: They are designed to “absorb losses” first if a bank’s capital falls below a certain level.

3. High Risk, High Yield: Because they are so risky, they offer much higher interest rates (coupons) than regular bonds or FDs.

4. The “Write-Off” Clause: If a bank faces severe financial stress or a “Point of Non-Viability,” regulators can legally write these bonds down to zero or convert them into equity. This means bondholders can lose 100% of their money even if shareholders get some value (as seen in the Credit Suisse case).

Comparison: AT-1 Bonds vs. Traditional Bonds: