08 September 2016

ICMA AMIC Bail-in Working Group sends discussion letter to ECB

The ICMA AMIC Bail-in Working Group has sent a discussion letter to the ECB. The letter highlights observations on the operation of the bail-in regime, from the buy-side point of view, and builds upon, and reflects evolutions in thinking on the bail-in mechanism.

Inconsistencies over the application of bail-in at a political, regulatory and national discretion level (for example, with regards to regulatory forbearance) drive investor confusion and market distortion, which in turn have an effect on the pricing and marketability of bank securities. Collaboration of all parties is needed in order to achieve a consistent and comprehensive banking union, where political and regulatory bodies will need to speak clearly with one voice.

The BIWG notes the enormous challenges faced by bank management teams, and the costly investment and human capital allocated by banks as they adapt to a new and more demanding regulatory environment. This is all taking place against a background of an adverse operating environment of very low interest rates stemming from the weakness of the economic cycle. The collective view of the BIWG is that all of these issues require focused and coordinated attention on the part of the regulators as they bear heavily on the creditworthiness and resilience of the banking system.

The BIWG firmly believes that the future development and success of the market for regulatory capital instruments would be best served by a high degree of standardisation and homogeneity, including a common framework for achieving subordination. In a similar vein, a regulatory requirement for parity of reporting and transparency of a bank’s debt structure, including asset encumbrance levels, as between the regulatory authorities and the market would encourage market discipline, and go some way to assuaging bondholders’ concerns over consistency of information.

Full letter

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