Regulatory Requirements at Cross-Purposes

This chapter will document the development of the capital and instrument requirements proposed under Basel III and how they have affected design, volume of issuance, and regulatory uses of cocos. To deduce the outlook for cocos from their regulatory treatment to date, it will present excerpts from key documents released by the Basel Committee on Banking Supervision [BCBS] and the European Banking Authority [EBA]. These documents in turn provided the foundation for the Capital Requirements Regulation [CRR-IV] issued in Europe in 2013 and the “final rule” adopted by bank regulators in the United States in the same year. Both of these regulations, also excerpted here, aim to implement Basel III in their respective countries or zones. Starting with the global regulatory framework first proposed in BCBS (2010 and 2011c) “for more resilient banks and banking systems,” the Chapter will focus on how regulations pertaining to the role of cocos in meeting capital requirements have evolved from the time they were first proposed to when they were adopted with variations by both the European Union and the United States…