Raising bank loss absorption capacity through equity capital or bail-in debt: A perspective from Europe
Benink,Harald
Benink,Harald
Abstract
Purpose Based upon recent statements made by the European Shadow Financial Regulatory Committee, a group of well-known professors coming from ten European countries, during the period 2012-2017, this paper aims to analyze from a European perspective the adequacy and credibility of the proposed framework. Design/methodology/approach This paper is a summary and interpretation of statements from the European Shadow Financial Regulatory Committee. Findings The authors argue that the credibility of the bail-in mechanism is likely to be limited. Because of this, unexpected losses may not be absorbed by unsecured debt holders. Therefore, there is still a need for relatively high equity capital buffers. Originality/value The issue of how to raise loss absorption capacity for banks is prominent on the international policy agenda. International regulators are aiming for a combination of equity capital, typically raised by issuing shares, retaining profits and issuing contingent convertible (CoCo) bonds and bail-in debt where unsecured creditors such as holders of subordinated and common bonds are supposed to take losses in case of a bankruptcy or restructuring of a bank.
Description
Date
2018
Journal Title
Journal ISSN
Volume Title
Publisher
Research Projects
Organizational Units
Journal Issue
Keywords
SDG 10 - Reduced Inequalities
Citation
Benink, H 2018, 'Raising bank loss absorption capacity through equity capital or bail-in debt : A perspective from Europe', Journal of Financial Economic Policy, vol. 10, no. 2, pp. 275-280. https://doi.org/10.1108/JFEP-01-2018-0004