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Change of approach for bond holders.

Bond index

 Domi­n­ique Laboureix, chair of the Single Res­ol­u­tion Board, the body in charge of shut­ting down failed banks, said fears that addi­tional tier 1 bank debt was «not investable any­more» should not apply in the EU. The decision over­turned estab­lished assump­tions that debt hold­ers would be pri­or­it­ised over equity hold­ers. As a result, the bank’s share­hold­ers received SFr3bn from UBS, while bond­hold­ers lost $17bn. The bond mar­ket jit­ters led the SRB, the European Bank­ing Author­ity and the European Cent­ral Bank to put out a state­ment stress­ing that com­mon equity instru­ments would con­tinue to be the first ones to absorb losses, with AT1 writ­ten down only after­wards.

«This type of approach would not be feas­ible under the European frame­work,» Enria told the EU Par­lia­ment yes­ter­day, adding they would wipe out bank equity before bonds, regard­less of whether a bank had to be wound down or was taken over by another lender. AT1s were intro­duced in the wake of the fin­an­cial crisis as part of reforms aimed at redu­cing the risk of tax­pay­ers being called upon to sup­port fail­ing banks. The secur­it­ies have grown into a mar­ket worth about $260bn. Con­cerns among investors fol­low­ing the week­end’s events were «under­stand­able» said Laboureix, adding that he was not cri­ti­cising the Swiss author­it­ies, which were act­ing on spe­cific national fin­an­cial sta­bil­ity con­cerns.

The SRB has respons­ib­il­ity for ensur­ing a fail­ure of one fin­an­cial insti­tu­tion does not spread tur­moil in bank­ing.

www.sba.tax

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  1. Bryce22 March 2023 at 11:41

    The Swiss authorities are responsible for the Credit Suisse problems. They could have and should have taken a closer look at what this bank does, how it invests money and assured that it wouldn't get to where it is now. We can't just shift blame to others when it's clearly the responsibility of authorities that major banks don't do stupid things like invest $5 billion in Archegos.

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    Replies
    1. Damian22 March 2023 at 18:55

      I wonder if the chairman of the bank got something for himself for investing that much money in something like Archegos. For savvy investors, Archegos was clearly a no-go but it seems CS had other ideas.

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