European banks are on track to issue a record of around € 100 billion in bail-in debt this year to comply with stricter regulations. That reports business newspaper Financial Times (FT). The relevant rules are intended to protect taxpayers against possible bank failures in the future.
These are so-called senior non-preferred (SNP) bonds, debt instruments designed to support banks in a future financial crisis. They can be converted to equity or ‘surrendered’ if a bank’s losses cancel out the capital buffers. In theory, a large bail-in debt will lead to bondholders, not taxpayers, having to pay for the recapitalization of the banks in a crisis situation.
Banks in Europe had already spent 94 billion euros in non-preferential debt at the beginning of December, according to figures prepared by S&P Global Ratings at the request of FT. According to the newspaper, it is obvious that the 100 billion euro limit had been exceeded before the end of the year.
