Basel Committee Says Bondholders Should Take Losses

The Basel Committee on Banking Supervision is proposing that debt counted as bank capital should be converted to stock or written off in a crisis, forcing bond investors to bear some of the cost of future bailouts.

All regulatory capital instruments sold by banks should be capable of absorbing losses if the company can’t fund itself, the committee said in a consultative paper today. Before taxpayers’ cash is used to rescue a lender, so-called contingent capital should be converted to equity or written off.