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We have a question regarding classification of an inflation index-linked own fund item as an tier 2 item.The instrument is a subordinated bond with fixed interest rate and pays semi-annual interest. Both principal and coupon payments are linked to changes in Consumer Price index (CPI). The indexed principal is payable at maturity. For each payment t = 1, 2, …, N, the payment amount is calculated as:index linked payment (t) = Payment(t) xCPI(t)/CPI(0) where Payment (t)  represent equivalent base value payment scheduled at time t, CPI0 represents the reference CPI level (valid on bond issue), CPIt  represents actual CPI level for payment at time t.The subordinated loan has a maturity of 30 years, with the first call date 10 years after issue date. There is as well a 100 bp. interest rate increase 10 years after issue date. Would an own fund instrument with above terms and conditions fulfil the requirements to be classified as a tier 2 item? If this would be permissible as an tier 2 item should the initial principle be used in own fund calculations or the indexed principal (which is the market price of the instrument)?

Classification of Tier 2 subordinated liability. Article 72 and 73 of delegated regulation (EU) 2015/35.