FSB, Deutsche clash on CoCos

Author: | Published: 2 Nov 2011

A Financial Stability Board (FSB) official and a Deustche Bank in-house counsel have clashed over the Board’s plan to ban contingent convertible instruments (CoCos) from being used in global systemically important financial institution (G-Sifi) buffers.

Speaking at the IBA session 'Recapitalising financial institutions in distress – can it really work?’ on November 2, and ahead of an official announcement on Friday after the G-20 summit in Cannes, Eva Hüpkes of the FSB said that they had considered the pros of allowing CoCos in the G-Sifi buffer, the shareholder discipline effect and lower costs.

"But at the end, those who pointed to the risks associated with these instruments prevailed, so the requirement will be common equity tier one only," said Hüpkes.

Trigger failure was one reason cited by Hüpkes, as the complexity of the instruments will actually prevent the definition of the trigger. The trigger instruments will also be effectively in...