The Central Bank of Russia has published a consultation paper setting out new approaches to regulating credit institutions’ subordinated instruments. The proposals are designed to let banks restore capital adequacy more quickly in stress conditions and to broaden their ability to raise subordinated funding by making these instruments more attractive to investors. The main measures would raise the capital adequacy trigger for write-off or conversion of subordinated debt included in Additional Tier 1 capital, limit accrued and paid interest when capital ratios fall below set thresholds, and prohibit systemically important credit institutions from issuing subordinated Tier 2 instruments. Under the proposed interest restrictions, limits would apply if a bank’s capital adequacy ratio falls below N1.1 of 7.5%, N1.2 of 9%, or N1.0 of 11%. For investors, the reform would allow the nominal value of Additional Tier 1 instruments to be restored after a write-off if the bank’s financial resilience improves, raise the maximum variable interest rate to the key rate plus 10 percentage points, and remove the requirement for Additional Tier 1 instruments to be perpetual by setting a minimum tenure of 10 years. The Central Bank of Russia said the planned regulation would apply only to subordinated instruments to avoid excess pressure on banks’ capital. Implementation may be staged because several elements require legislative amendments. The first stage, planned by January 2027, would create the legal framework for issuance with the new triggers and interest rates. A second stage, which may be adopted as early as the first quarter of 2028, would cover the end of perpetual tenure, the restoration option for Additional Tier 1 instruments, and the ban on Tier 2 issuance by systemically important credit institutions.
Central Bank of Russia2026-06-22
Central Bank of Russia proposes subordinated instrument reforms, raising AT1 triggers and barring systemically important banks from Tier 2 issuance
The Central Bank of Russia has proposed reforms to subordinated bank instruments aimed at speeding capital restoration in stress and improving investor demand. The plan would raise Additional Tier 1 write-off and conversion triggers, cap interest payments when capital ratios fall below specified thresholds, and ban systemically important credit institutions from issuing subordinated Tier 2 instruments. Other proposals include allowing restoration of written-off Additional Tier 1 nominal value, lifting the variable-rate cap to the key rate plus 10 percentage points, and replacing perpetual tenure with a 10 year minimum term.