Hybrid capital in APRAs sights after Credit Suisse wipeout
So-called AT1 capital, designed to buffer banks under stress, has proved controversial overseas and will now be reassessed in Australia by APRA.
The banking regulator APRA will “explore options” to improve the effectiveness of a relatively new form of hybrid bank capital introduced after the global financial crisis but heavily criticised in the wake of the collapse of Credit Suisse earlier this year.
Additional Tier 1 (AT1) capital instruments, also known as contingent capital, are a form of hybrid debt which can be “bailed in” as equity when a bank comes under stress.
They are popular with retail investors in Australia but their actual structure varies in different jurisdictions. That is a particular issue for APRA - around half the bonds on issue in Australia are held by retail investors, mainly because they are counted as equity for franking purposes.
Executive board member Therese McCarthy Hockey noted this was unusual by global standards.
