Banks’ capital requirements fall into two basic categories plus a series of buffers under the framework set by the Basel Committee on Banking Supervision. Pillar 1 requirements are one-size-fits-all and set out the minimum levels all lenders must meet to be considered solvent. Pillar 2 requirements are defined by supervisors for each bank individually, to cover risks that may not be covered by Pillar 1. The European Central Bank determines them in its Supervisory Review and Evaluation Process, or SREP, and until now encouraged banks to not disclose them.
“We know that there are differences in how these rules are applied by supervisors and that’s why we have now started the process of reflecting on this,” ...
... CoCos, which are taxed as debt and are designed to retain cash in a struggling lender, are undated and interest payments are optional, meaning an issuer can’t default on them.
Unlike suspended dividends or bonuses, interest payments on CoCos that are lost can’t be made up for by higher payments later.
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