The BBA is now integrated into UK Finance. Please go to www.ukfinance.org.uk for new content and updates from UK Finance.
Material published by BBA prior to 1st July 2017 is still available on this website.
From 1 July 2017, the finance and banking industry operating in the UK will be represented by a new trade association, UK Finance. It will represent around 300 firms in the UK providing credit, banking, markets and payment-related services. The new organisation will take on most of the activities previously carried out by the Asset Based Finance Association, the British Bankers’ Association, the Council of Mortgage Lenders, Financial Fraud Action UK, Payments UK and the UK Cards Association.x
In its first significant test, the EU’s bail-in regime has shown that the days of state bail-outs for ailing banks are coming to an end.
As to be expected, Banco Popular’s shareholders and junior bondholders have been wiped out. But this was sufficient to stabilise the bank. Depositors have been protected, senior unsecured debtholders are also safe, and not a single euro of taxpayers’ money has been spent.
But, for the first time, Additional Tier 1 capital instruments (in this case, CoCos – Contingent convertible bonds) were written down to zero. CoCos are designed to absorb losses when the capital of the issuing bank falls below its regulatory capital minimum. But Banco Popular was put into resolution before the CoCo conversion was triggered. Interestingly, the Spanish CoCo market bounced in the wake of the write-down.
And the much-feted ‘resolution weekend’, over which the Bank of England would expect to seal a bank resolution, had been squeezed into an overnight slog!
So not only had resolution gone better than clockwork, investors’ commitment to bail-inable bonds held firm, despite the first big loss. A robust market for these bonds is essential to the sustainability of the resolution framework.
The ECB, the SSM, the SRB (Single Resolution Board), the FSB (Financial Stability Board), the IMF, national governments, and most importantly bank customers, now know that resolution can actually work.