Super-Absorbent Bank Regulatory Capital

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The Basel Committee on Banking Supervision (“BCBS”) has refined its views on the features capital instruments must possess in order to be acceptable as regulatory capital. On 19 August 2010, BCBS published a consultative document1 containing a proposal to require, as a pre-condition of regulatory capital treatment, that the contractual terms of capital instruments issued by banks provide for write-off or conversion to common equity, at the discretion of the relevant regulatory authority, in the event that the bank issuer is unable to support itself in the private market (the “Gone-Concern Proposal”).

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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