A bank considers issuing new capital to increase its Tier 1 capital levels.

When a bank looks to issue new capital to increase its Tier 1 capital levels, the following instrument is most likely considered:

Convertible Preferred Shares: These shares can be converted into common stock. They are considered part of Tier 1 capital because they have characteristics of equity, such as absorbing losses while the bank remains a going concern.

Long-term and callable debt, short-term callable debt, and short-term debt convertible to non-cumulative preferred shares do not typically qualify as Tier 1 capital because they do not provide the same level of loss absorption as equity instruments.