Overall, WSBI-ESBG welcomes the opportunity to comment on the consultative document of the BCBS. WSBI-ESBG agrees with the overall objective in theory, that non-core Tier 1 capital instruments and Tier 2 capital instruments (mainly subordinated debt) issued by banks should be capable of absorbing losses in the event of non-viability.

Nonetheless, before addressing these concerns, WSBI-ESBG would like to stress that in relation to the three ‘Options’ outlined in the consultation document which could be considered to ensure that instruments treated as regulatory capital are capable of bearing losses, that ‘Option 1’ is not neglected. In WSBI-ESBG’s view, this ‘Option 1’ – to develop national and international bank resolution frameworks that enable all losses to be allocated to all capital instruments issued by internationally active banks that have reached the point of non-viability – is more favourable than pursuing ‘Option 3’; requiring that all regulatory capital instruments include a mechanism in their
terms and conditions that ensures they will take a loss at the point of non-viability, which the document from the BCBS focuses on.

In relation to the proposed mechanism outlined in the consultative document, WSBI-ESBG has significant concerns of a general and a more specific nature as well as doubts about its workability in practice. More specifically, they have concerns about the effect on fnancial instrumernts concerned, the trigger events of non-viability, financial stability concerns and finally the interplay of state intervention by recapitalisation with other state-aid measures.