Under Basel III norms, Tier 2 Capital includes instruments like subordinated debt and hybrid capital, which are considered less secure than Tier 1 capital and primarily serve to absorb losses in the event of a bank's liquidation.
- True
- False
Answer: True
Tier 2 capital is supplementary capital. In the event of a bank failure, Tier 1 capital absorbs losses first to keep the bank running (going-concern). If the bank is inevitably winding down (gone-concern), Tier 2 instruments are then written down or converted to equity to protect depositors and senior creditors from taking total losses.