Emerging structures for contingent capital

摘要

After the financial crisis it became obvious that subordinated debt such as hybrid capital instruments and preferred stock did not absorb losses as intended. Consequently, the Basel Committee of Banking Supervision has established, through the new Basel III framework, that for securities to be counted as regulatory capital they must be able to absorb losses through either a conversion to common shares, or a writedown mechanism, which allocates losses to the instrument at a pre-specified trigger point. The trigger can be based on regulatory capital ratios, on market-based measures1, or on a measure defined by the bank itself2.