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Tier 2 Capital is part of the component of a bank's reserves. This is considered the secondary or supplemental layer to the bank's capital.
It includes:
- revaluation reserves
- hybrid instruments
- subordinated term debt
This is considered less secure than Tier 1 Capital since it lacks the liquidity.
According to the Basel Accord, no more than 25% of the assets of a capital requirements can be Tier 2.