Thursday, June 11, 2026 at 08:00 AM
Original source
BIS — Research & Publications
MacroLab briefing generated by AI for informational purposes. Original reporting by BIS — Research & Publications. Not financial advice.
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Global bank regulators at the Bank for International Settlements (BIS) are reviewing how a type of bank bond called Additional Tier 1, or AT1, actually works in practice. AT1 bonds are a special financial tool designed to keep banks standing during crises. When a bank gets into trouble, these bonds are supposed to convert into stock or lose value to absorb the losses, protecting depositors and taxpayers. The regulators found that these bonds aren't doing their job as well as intended because the rules for when they kick in are set too low (called low trigger thresholds) and because there's too much room for judgment calls by regulators about when to activate them.
When a bank fails, it can trigger a financial crisis that spreads to regular people's jobs, savings, and ability to borrow money. AT1 bonds exist to prevent that by acting as a financial cushion inside the bank. If regulators realize AT1 bonds don't work reliably, it means banks may have less actual financial protection than we thought. This could mean banks need to hold more capital (cash and safe assets) or that the next financial crisis could be worse than expected. It also affects anyone who holds bank bonds or stock, since these investors could lose money if a bank's safety net has holes in it.
Watch for announcements from banking regulators over the next year about whether they're tightening the rules for AT1 bonds, such as raising the trigger points so bonds convert into stock sooner. If you see news that regulators are requiring banks to hold more capital or issue fewer AT1 bonds, that signals they're taking the problem seriously. Conversely, if nothing changes and AT1 bonds keep working the way they do now, that's a warning sign that a potential weakness in the banking system remains unaddressed.