CEBS publishes a quantitative survey on hybrid capital instruments

13 March 2007

The Committee of European Banking Supervisors (CEBS) is publishing today an empirical snapshot of the characteristics of hybrid capital instruments recognised as regulatory original own funds in the European Economic Area (EEA).

It is the third contribution of CEBS to the European Commission's current review of the definition of Own Funds. It complements the CEBS survey of the implementation of the current rules across Member States and its analysis of the capital instruments recently created by the industry, published on 23 June 2006 (/cebs-archive/publications/opinions-advices/2006/current-rules-on-own-funds-and-market-trends-in-the-new-capital-instruments)

Hybrids refer to a wide range of capital instruments that combine features of debt and equity but are neither common stock nor ordinary debt.

CEBS has analysed the year end 2006 data from a representative sample of institutions in the EEA countries where such instruments are eligible as original own funds. The overall aggregate total amount of hybrids displayed in this report may not correspond to the outstanding amount of hybrids issued in the EU, mainly because of the unavoidable double-counting across countries.

Although the economic characteristics may vary across instruments and across countries, on an aggregate basis the data collected has allowed CEBS to conclude that the vast majority of hybrids are undated. Institutions have maximum discretion over the amount and timing of distributions and payments which in most cases can be waived to absorb losses on a going-concern basis and in periods of stress. They are all deeply subordinated. With regard to other loss absorbency features, the analysis tends to highlight a wider diversity.

The report should be read as part of a wider and more complete quantitative study of the other eligible capital instruments and of the interplay between the limits to their inclusion. The final analysis is in progress at CEBS and is expected to be finalised by mid 2007.

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