Cocos should not be eligible

Author: Gemma Varriale | Published: 11 Jul 2011
Should the Basel Committee have allowed CoCos to be endorsed in capital rules for systemic banks?

The Basel Committee has announced that contingent convertible bonds (CoCos) will not be eligible for the additional capital buffer to be required of the world's biggest banks.

In this month's Big Question, the decision to exclude CoCos from this eligible capital for global systemically important banks has divided the industry.

The surcharge is part of a sweeping regulatory response to the financial crisis, aimed at preventing a repeat of the costly bank bailouts worldwide and making them safer by 2019.

"The additional loss absorbency requirements are to be met with progressive common equity tier 1 capital requirement ranging from 1 percent to 2.5 percent, depending on a bank's systemic importance," said the Group of Governors and Heads of Supervision (GHOS).

Although the central banks have opted for a smaller surcharge than predicted, it...