Raising bank loss absorption capacity through equity capital or bail-in debt: A perspective from Europe

Research output: Contribution to journalArticleScientificpeer-review


Based upon recent statements made by the European Shadow Financial Regulatory Committee, a group of well-known professors coming from ten European countries, during the period 2012-2017, this paper aims to analyze from a European perspective the adequacy and credibility of the proposed framework.

This paper is a summary and interpretation of statements from the European Shadow Financial Regulatory Committee.

The authors argue that the credibility of the bail-in mechanism is likely to be limited. Because of this, unexpected losses may not be absorbed by unsecured debt holders. Therefore, there is still a need for relatively high equity capital buffers.

The issue of how to raise loss absorption capacity for banks is prominent on the international policy agenda. International regulators are aiming for a combination of equity capital, typically raised by issuing shares, retaining profits and issuing contingent convertible (CoCo) bonds and bail-in debt where unsecured creditors such as holders of subordinated and common bonds are supposed to take losses in case of a bankruptcy or restructuring of a bank.
Original languageEnglish
Pages (from-to)275-280
JournalJournal of Financial Economic Policy
Issue number2
Publication statusPublished - 2018


Cite this