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Allowance for special capital

Tier 1 capital, or core capital, comprises the share capital and retained profits of a company. Supplementary tier 1 capital is so-called hybrid capital instruments with characteristics of both equity capital and borrowed capital. This capital consists of instruments that have an unspecified maturity date and no repayment incentive. Currently compensation, for example interest, to banks and insurance companies for providing such capital, is deductible. The government now wants to put an end to that. Hence the government aims to ensure equal treatment of equity capital and borrowed capital and thus envisages to restrict financing with borrowed capital (including hybrid capital) to ensure a healthy financial sector.