Explain the Basel capital stack: what qualifies as CET1, Additional Tier 1, and Tier 2, and why the distinction matters.

Capital is tiered by loss-absorbing quality. CET1 (Common Equity Tier 1) is the highest quality — common shares and retained earnings — fully loss-absorbing on a going-concern basis, and the key constraint regulators and markets watch. Additional Tier 1 (AT1) is going-concern capital too but lower quality: perpetual instruments like contingent convertibles (CoCos) that convert or write down when CET1 falls below a trigger. Tier 2 is gone-concern capital — subordinated debt that absorbs losses in liquidation, protecting depositors and senior creditors. The distinction matters because minimum ratios and buffers (capital conservation, countercyclical, G-SIB) are largely set in CET1 terms, AT1/Tier 2 can only partly substitute, and breaching buffers restricts distributions (the MDA). Quality, not just quantity, of capital is the point post-2008.