Europe’s painful phase-out of old-style capital instruments

Matthew Attwood in Financial News reports on the difficulties that European banks face when replacing pre-crises capital instruments by Basel III compliant instruments.

This was a small disaster waiting to happen, as Bazel III rules made it clear, pretty much from the outset, that it wanted to see the back of “old-style” instruments sooner rather than later.

See page 29 of the Bazel III rules published December 2010, expecting a date of coming into force of 1 January 2013, now postponed:

For an instrument that has a call and a step-up between 12 September 2010 and 1 January 2013 (or another incentive to be redeemed), if the instrument is not called at its effective maturity date and on a forward looking basis does not meet the new criteria for inclusion in Tier 1 or Tier 2, it will be fully derecognised in that tier of regulatory capital from 1 January 2013.

This is publicly known information for 2.5 years now, therefore, I am a bit surprised by the surprise.

However, my guess is that those who know don’t speak, but instead trade on the knowledge aquired by having done homework some years ago.

Advertisements

One thought on “Europe’s painful phase-out of old-style capital instruments

  1. Pingback: Deutsche’s phase-out of old-style capital securities and the meaning of perpetual debt | Capital Issues

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s