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?
The European Banking Authority (EBA) published today the periodical update to its Risk Dashboard summarizing the main risks and vulnerabilities in the banking sector on the basis of the evolution of a set of Risk Indicators (RI) across the EU. You really have to critically analyse this report, as it contains mixed messages on the capitalization… Read More EBA updates its Risk Dashboard
The ECB just published their plans to harmonise Options and Discretions in the CCR available to Euro-zone banks. Initially, the ECB set promising expectations. It had identified a whopping 160 Options and Discretions, many of which were meant to be chopped. See this interview with a very confident Ignazio Angeloni some weeks ago. But the… Read More ECB goes soft on capital requirement harmonisation
Uh oh, Jeroen Dijsselbloem form the Netherlands got into rough water this week: Dutch newspaper NRC had a nice scoop that showed how he relied on ING word smiths for writing a tax rule that renders bank capital instruments (CoCos) tax deductible, see full freedom of information documentation here. How bad is this? End 2013,… Read More Five years after the first Basel III coco issuance, the Netherlands “gets” CoCos.
Over the last weeks, the issue of bank Deferred Tax Assets (DTAs) came up again. What does not really help ending this story is the confusion on the subject of DTAs. Let me make a stab in trying to end the DTA confusion. Here are some snippets that from various news sources that I gathered.… Read More In defence of bank DTAs
Silvia Merler published a great post on the solvency of Greek banks. Though she focuses on CET1 ratios, I just realised that Article 92 of the CRR requires this: 1. Subject to Articles 93 and 94, institutions shall at all times satisfy the following own funds requirements: (a) a Common Equity Tier 1 capital ratio… Read More Greek Banks and Article 92 CRR
Today, the EBA held a public hearing on the 4 May report on AT1 issuances, see my previous post on this. Click here for the PowerPoint that the EBA prepared. Apparently no surprises. On the hot topic of Contingent Clauses, the EBA reports that it “confirms its previous reserves, and recommends disallowing contingent clauses”. A… Read More UPDATE: The EBA’s laudable effort to tame Additional Tier 1 issuances
This week, the EBA issued its preliminary report on the monitoring of Additional Tier 1 (AT1) instruments of EU. It is a great document for outsiders to obtain a feel for what these instruments are like and how they behave in their regulated habitat. For example, an important critique pertains to the complexity of these… Read More The EBA’s laudable effort to tame Additional Tier 1 issuances
With the EBA and the ECB announcing results of the stress test and the AQR next week, and with feeble banks shivering, you may consider setting aside a couple of hours this week to read the terms and conditions of bank capital instruments. Maybe your investment in capital securities of EU banks is at risk, maybe not.… Read More Homework for the upcoming week: EU bank capital rules.
Today the Wall Street Journal reported on an alleged loophole in EU bank capital rules. The loophole pertains to deferred tax assets (DTAs), a regulatory area where tax rules and accounting rules meet. Apparently some countries exploit a DTA loophole: Italy, Spain, Portugal and Greece. Uh oh, these countries, the usual suspects. There is something really wrong here.… Read More The Italian DTAs