This term refers to the ranking of the bond issued by a bank in terms of the order of repayment in the event of a sale or bankruptcy of the bank. Senior debt is repaid before subordinated debt. Within Subordinated Debt, Tier 3 gets paid first, followed by Upper Tier 2, followed by Lower Tier 2, followed by Tier 1.
Accordingly, the general ranking of bank debt securities (highest priority at the top (senior) and lowest at the bottom (equity):
- Tier 3
- Upper Tier 2
- Lower Tier 2
- Tier 1