Proposal to Ensure the Loss Absorbency of Regulatory Capital at the Point of Non-viability

by Basel Committee on Banking Supervision

August 2010

Introduction: In the December 2009 consultative document Strengthening the resilience of the banking sector, the Basel Committee on Banking Supervision noted that

"[the Committee] continues to review the role that contingent capital and convertible capital instruments should play in the regulatory capital treatment. The Committee intends to discuss specific proposals at its July 2010 meeting on the role of convertibility, including as a possible entry criterion for Tier 1 and/or Tier 2 to ensure loss absorbency, and on the role of contingent and convertible capital more generally both within the regulatory capital minimum and as buffers."

This consultative document outlines a proposal to enhance the entry criteria of regulatory capital to ensure that all regulatory capital instruments issued by banks are capable of absorbing losses in the event that a bank is unable to support itself in the private market.

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