Bank bail-ins struggle to find the right balance
As the G20 seeks to install a permanent resolution mechanism to enable burden sharing between the private and public sectors in any future financial crisis, investors and banks are in a state of flux. Pricing bank debt securities that convert into equity in times of stress is problematic, if they are investable at all. Hamish Risk reports.
BY MID-2011 the Basle Committee for Banking Supervision in coordination with the Financial Stability Board is expected to complete a study that will determine how much, and in what form, bank capital will be required to act as a shock absorber for the so-called "global systemically important financial institutions (G-Sifis)." Running parallel to this, the FSB will also examine the viability of contractual and statutory bail-ins, before the two groups make their final recommendations by the end of 2011.
For fixed-income investors, the implications are huge. In a future crisis don’t expect to be repaid in full. Political pronouncements are unequivocal.