LONDON – In the aftermath of a market upheaval that wiped out $17 billion of Credit Suisse’s Additional Tier 1 (AT1) bonds, European Central Bank (ECB) supervisory head Andrea Enria has called for the establishment of global rules governing AT1 bonds. Speaking at a conference today, Enria emphasized the importance of standardizing regulations in line with the Basel Committee’s guidelines.
The call for action by the ECB’s supervisory head comes on the heels of a significant disturbance in the financial markets earlier this year. In March 2023, a revision to Swiss law played a pivotal role in the government-assisted acquisition of Credit Suisse by UBS Group AG (SIX:). This event placed AT1 bonds at the center of controversy as they were wiped out, leading to substantial losses for investors and triggering investor backlash. The fallout from this incident was profound, with AT1 bond yields soaring above 15%, marking the largest daily loss in market history.
The eradication of Credit Suisse’s AT1 bonds under Swiss law revision not only affected investors looking for returns but also raised questions about the treatment of shareholders during such financial crises. While Credit Suisse’s shareholders were not completely wiped out, many AT1 bondholders faced total losses, prompting severe criticism and calls for more consistent regulatory measures.
Enria’s push for global standardization seeks to address these concerns by ensuring that AT1 bond rules are harmonized internationally, thereby providing a more predictable and stable framework for investors. This would potentially mitigate the risk of similar market shocks in the future and protect against disparate outcomes for different stakeholder groups in cases of bank restructuring or failure.
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