Experienced professional in Treasury & Market Risk, Asset Liability/ Balance sheet Management, Credit Ratings
AT1 Bonds are perpetual callable bonds created from Basel III regulations to absorb losses of banks on going-concern basis and thus shield depositors and tax-payers. However, there has always been a discussion and debate over the marketing of such bonds to investors, risk-return spectrum, statutory vs contractual conditions to absorb losses, inversion of creditor hierarchy, and actual actions taken outside resolution by various regulatory entities in crisis scenarios. The FSI Brief from BIS is a structured read for placing all such debates and practices in global perspective and as the appetite for AT1 bonds stabilizes, whether the current design of AT1 instruments remain fit for purpose and whether investors are apprised of the inherent risks of write-down even before PONV is reached outside of resolution. https://lnkd.in/di4ai65S
Quantitative Analyst(xVA Quant) at UBS | Ex- RBI | IIT Jodhpur
11moGreat share , have a things to discuss How can a full writedown of all CS-issued AT1 instruments be justified? Is it a reflection of flawed risk management, inadequate regulatory oversight, or both? Because In UBS CS merger shareholders be protected at the expense of bondholders, especially when AT1 instruments were designed to absorb losses? Does this not contradict the very essence of equity being the primary risk-absorbing capital? What are your thoughts?