Speranze e illusioni: i CoCos nella regolamentazione bancaria Un’analisi dinamica tra libertà contrattuale e regolamentazione prudenziale

On 19 March 2023, UBS Group AG agreed to acquire Credit Suisse. The merger was necessary to avoid the collapse of Credit Suisse and the deal was supported by the Swiss regulator (FINMA) with the decision to write down 17bn CHF of contingent convertible bonds. Contingent convertibles bonds (CoCos) are hybrid capital instruments that should absorb bank losses in going concern. CoCos entered into the regulatory landscape with the Basel III Accords in 2010. However, in the first decade of application, their going-concern loss absorption was never activated.
This article analyses the reasons why CoCos have not kept their promises in terms of prudential regulation. The article pinpoints a set of reforms that would break this vicious circle, enabling CoCos to safeguard the going concern value of solvent banks as they approach distress. The proposed reforms would limit the autonomy of market players in defining the CoCos’ contractual design and lower the threshold for their write-down or conversion. Importantly, this article argues that, should these reforms prove unimplementable, regulators should eliminate CoCos from the prudential framework and increase bank equity requirements accordingly.