AT1 Bonds: The new financial weapons of mass destruction?

A final word on the potential of AT1 bonds to wreak havoc in the global financial system from a systemic perspective, with many investors complacent or unaware of the onerous conditions of these bonds

In the aftermath of the 2008 financial crisis, the Basel-III accord introduced a new instrument, the Additional Tier-1 (AT1) bond, to protect depositors of a bank on a “going concern” basis. The essential element of this instrument is the imposition of losses on its holders without the bank being liquidated, if the Common Equity Tier-1 (CET 1) ratio falls below a threshold level. The bonds are also known as perpetuals as they do not have a redemption date, and carry the following features:
 
* Callable at the initiative of the issuer only after a minimum period of five years,