Structuring innovative tier 2 (T2) capital instruments under Basel III: a Shari'ah perspective
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Basel III has redefined the criteria for qualifying regulatory capital instruments. Banks have to maintain Common Equity Tier 1 (CET1) capital of at least 4.5% of Risk-Weighted Assets (RWA) and Tier 1 (T1) capital should be at least 6% of RWA at all times, while total capital (i.e., Tier 1 plus Tier 2) must be at least 8% of RWA at all times. T1 capital will absorb losses during going-concern - a situation where the bank is still solvent and continuing operation. Tier 2 (T2), on the other hand, refers to gone-concern capital, which will absorb further losses when the bank is facing financial distress and reaches the point of non-viability.
Basel III , Shari?ah , Tier 2 (T2) , Islamic banking
Sairally, Beebee Salma and Muhammad, Marjan and Mustafa, Madaa Munjid. (2015). Structuring innovative tier 2 (T2) capital instruments under Basel III: a Shari'ah perspective. ISRA International Journal of Islamic Finance, 7 (2), pp. 163-170.