Regulators’ Decision on Contingent Capital Backs U.S. Stance

The decision to make too-big-to-fail banks primarily use retained earnings and ordinary shares to meet heightened capital requirements was a victory for U.S. regulators over their European counterparts.

The Basel Committee on Banking Supervision largely rejected requests from European countries to use some forms of contingent instruments to satisfy the new capital buffers. Regulators have yet to prove that so-called CoCo bonds, which convert into ordinary shares if a trigger event occurs, can absorb a bank’s losses, a person familiar with the negotiations said.