This week, financial markets were spooked by the write-down of Additional Tier 1 securities of Credit Suisse. Soon after the writedown, a discussion ensued regarding its legitimacy. One camp argues that investors in these securities should have read the instruction manual. See the pointy opinion piece in IFR by Prasad Gollakota, the former co-head of… Read More What happened to the whipping boy of bank capital?
Last week, the RBNZ released the three independent international experts’ assessments of the New Zealand Capital Review. The RBNZ commissioned three international experts in May as part of the bank capital review. The reports by Cummings, Miles and Levine offer interesting views on bank capital. The reports are different in substance and style. However, they… Read More My two cents on Ross Levine’s expert report: deep thinking on incentives, dynamics, and moral hazard.
“He is the problem.” the investment banker said on a sunny afternoon some weeks ago over a plate of Shed 5 fish & chips. I agreed, it’s the governance of the process, or the lack thereof, that puts the capital plans of the Reserve Bank at risk. The investment banker had spent the entire Christmas… Read More The Governance of the Reserve Bank Capital Plans
Just the other day, the Dutch government announced plans to end the favorable tax treatment of CoCo securities. From 1 January 2019 onward, the tax deductibility of the coupon paid on Additional Tier 1 capital instruments will end.  See a Google translation of the announcement here. Such a change in tax treatment likely constitutes a Tax… Read More European Commission slaps Dutch government on the wrist: the end of AT1 coupon tax deductibility?
The RBNZ wants to redefine capital. My comments are below. In short: don’t let perfection be the enemy of the good. The RBNZ runs the risk of achieving just what it does not want by going it alone. A DIY-definition of capital makes the Reserve Bank vulnerable to structuring. Moreover, the problems signalled by the Reserve… Read More Comments on RBNZ’s second capital review paper: What should qualify as bank capital?
About a fortnight ago Kiwibank announced that its formerly disqualified capital instruments now re-qualify as capital. Yay! This after a the capital disqualification event on which I wrote not so long ago. There was almost no press coverage of the re-qualification. Yes, there was NBR’s Jenny Ruth who wrote a noisy and non-informative story on the… Read More Kiwibank capital flip-flop
Kiwibank’s capital cock-up took an unexpected turn this week when the bank made another extraordinary announcement. On Friday, the bank let us know that its parents will bail out the bank with an infusion of $247 million of common equity. Sheesh, I thought only Italy did bail-outs! Infusing equity capital is the last thing a… Read More Kiwibank puts its money where its mouth should be
On 15 March, New Zealand Kiwibank issued two odd statements regarding their Basel III compliant (or is it compliant) capital instruments. The announcements raised the prospect of disqualification of two capital instruments: the Tier 2 convertible subordinated bond issued on 6 June 2014 (Tier 2 Bond); and the Additional Tier 1 perpetual bond issued on 27 May… Read More Free rider problems and tax bills? The Kiwibank capital cock-up
My post on EU leverage ratios yesterday attracted some comments on twitter, which may haven been triggered by misunderstandings. The CRR offers a short and clear summary of the Leverage Ratio definition in Article 429.1: “The leverage ratio shall be calculated as an institution’s capital measure divided by that institution’s total exposure measure and shall… Read More FYI some documentation on the Leverage Ratio for EU banks
It ain’t over till it’s over: the Basel Committee on Banking Supervision churns out new regulatory initiatives like there’s no tomorrow. Last week, the Committee issued a consultation on TLAC. The good thing is that the BCBS does consult. And the Basel TLAC consultation deserves support: it proposes to deduct TLAC holdings from regulatory capital.… Read More Basel Committee Consults on TLAC
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