Newsletter September 2010: All bank capital required to be fully loss-absorbent

BASEL – Regulators are proposing new rules to ensure that holders of subordinated bank debt suffer losses before taxpayers when banks are facing insolvency. A consultative paper,* issued in mid August by the Basel Committee, the global standard-setter, proposes a new requirement that all non-common equity instruments that are eligible as Tier 1 and Tier 2 regulatory capital at internationally-active banks should contain contractual terms allowing them to be written off or converted to common shares if a trigger event occurs.