Fed’s Top Banking Regulator Signals Tougher Bank-Capital Rules
Push for tighter capital rules would likely draw opposition from banks
Michael Barr, the Fed’s vice chairman for banking supervision, said that the central bank is still conducting a broad review of its capital requirements but suggested the overall requirements appeared to be lower than they ought to be.
The written remarks were accompanied by about four pages of academic references.
“We are currently evaluating whether the supervisory stress test that is used to set capital requirements for large banks reflects an appropriately wide range of risks,” he said.
WSJ 1 December 2022
ECB is imposing higher capital requirements on lenders including BNP Paribas and Deutsche Bank,
arguing that they have ignored warnings to cut risk in the lucrative business of leveraged finance
In recent years a number of European lenders piled into extending credit to highly indebted borrowers, often the subject of private equity takeovers, as they sought to compete with US firms in an area that can be highly profitable and help them win other business.
That prompted ECB concerns as far back as 2017, and the rising level of risk has set the industry on course for a showdown with the regulator.
Bloomberg 25 november 2022
The riskiest type is Additional Tier 1 debt — often known as contingent convertibles, or CoCos for short — which are the most subordinated type of bank debt, with the (usually sophisticated) investor on the hook for the full amount. That’s why the yields are much higher than what’s available on plain-vanilla bonds.
Marcus Ashworth Bloomberg 25 november 2022
The value of additional tier 1 (AT1) bonds issued by major banks declined dramatically
One of the sharpest fallers was Deutsche Bank, whose $1.25bn AT1 bond dropped more than 10 cents to 61 cents on the dollar. It had been sold to investors at face value a little over a month ago.
March 2020
https://englundmacro.blogspot.com/2020/03/the-value-of-additional-tier-1-at1.html
Tier 1 Capital: Definition, Components, Ratio, and How It's Used
https://www.investopedia.com/terms/t/tier1capital.asp
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