Newsletter November 09: Regulators, markets hopeful as contingent capital debuts

Mandatory convertible bonds could help reduce bank failures. But trail-blazer issue raises questions. Where should ‘triggers’ be pitched? By Melvyn Westlake A new form of regulatory capital for banks, which has been the subject of intensifying interest among regulators on both sides of the Atlantic, suddenly became a market reality in early November with the trail-blazing launch of so-called contingent convertible bonds by a major British bank. Such instruments – bonds that convert into equity if a bank runs into financial trouble and some pre-determined trigger is hit – form part of the huge £22.5 billion ($38bn) capital raising and bond exchange deal launched by the part state-owned Lloyds Banking Group.