The banking sector in Europe is resilient and has a “robust pool of capital and liquidity”. The European Central Bank (ECB) announced this on Monday after the ailing Swiss bank Credit Suisse takeover by the also Swiss UBS.
The ECB welcomes the measures taken by Switzerland “to ensure financial stability”.
The ECB emphasises that the European Union has clear rules about who should be the first to suffer the consequences if a bank runs into financial problems. First, these are usually the regular shareholders. Next comes the turn of bondholders, with the so-called Additional Tier 1 (AT1) carrying the most risk.
At Credit Suisse, those AT1 bonds have become worthless during the takeover. But that does not always have to happen, according to the ECB, which wants to avoid restraint among buyers of AT1 bonds.
Analysts from Bloomberg Intelligence found that only Credit Suisse and UBS state that the terms of the AT1 bonds state that they can be written off in full. At other large European and British banks, these bonds can only be written off temporarily or converted into shares.