Newsletter February 2011: Academics urge higher bank capital and more CoCos

LONDON – A dozen European academics involved in financial regulatory issues are urging the Basel Committee to raise bank minimum capital levels by more than currently proposed, but allow a higher proportion to be in the form of contingent capital. In a statement issued in London in late January, the European Shadow Financial Regulatory Committee (ESFRC) calls on the Basel Committee to “acknowledge the important and attractive characteristics of contingent capital instruments and to allow these instruments to be a more substantial part of banks’ Tier 1 capital.” Not only would such instruments make it less costly for banks to increase their capital ratios, the academics say, “but they would have significant effects on market discipline as well.”