Under Basel II, Tier 2 capital, also known as supplementary capital, includes:
* Subordinated Debt: This type of debt ranks below other debts with respect to claims on assets or earnings. It is considered Tier 2 capital because it can absorb losses in the event of a winding-up of the bank.
* Other Instruments: This category can also include hybrid instruments, undisclosed reserves, revaluation reserves, and general provisions/general loan-loss reserves.
These components enhance the bank's ability to absorb losses beyond the protection provided by Tier 1 capital.References: How Finance Works, sections explaining the structure and components of Tier 2 capital under Basel II.