Tom Young, Elizabeth Fournier, Nicholas Pettifer
Grandfathering, the composition of tier one capital and loss absorption are the most worrying aspects of the Basel Committee's latest proposals for UK banks.
"In the short term, ambiguity surrounding grandfathering is one of the biggest concerns for banks," says Linklaters' head of equity and debt markets, Carson Welsh. The Basel proposals state that grandfathering will be considered in relation to existing hybrids instruments that were sold before the proposal was published (December 17 2009).
But no mention is made of the position for instruments issued after that. This has caused confusion. While the Basel Committee has published proposals for capital requirements in the future, it has also announced its intention to only grandfather instruments issued as hybrid capital before December 17.
"The Basel Committee has created something of a black hole," says Welsh. It is now difficult for banks considering a hybrid in...