Regulators tighten rules on banks' hybrid capital

Global bank regulators on Thursday laid out rules to make clear holders of hybrid bank debt will take losses if a lender becomes insolvent, so that taxpayers aren't left to foot the bill. One of the biggest controversies of the financial crisis was how holders of subordinated bank capital debt escaped liability for bank failures even when public funds were being used to shore-up faltering institutions.
The global banking watchdogs' rules were in line with last August's draft proposal. The Committee will publish a keenly awaited draft later this year for dealing with a bank's bonds when capital levels move below minimum requirements but the lender's problems are not yet terminal. Under the new rules, holders of the debt will have to agree to the bonds being written down or converted to equity if the bank is no longer commercially viable or needs public aid, the Basel Committee said in its statement.