News Column

Bankers set for coco bonuses as watchdog sets payout standards

February 20, 2014

TIM WALLACE



MORE European banks could follow Swiss lenders' lead in paying some bonuses in contingent convertible bonds, as the European Banking Authority (EBA) set out standards on the instruments.


The instruments only have a value when the bank is strong - if its capital position deteriorates, the bond is wiped out.


The aim of the bonds, known as cocos, is to create a bail in mechanism.


Instead of banks being bailed out when their capital positions fall, their investors - or bankers paid with the bonds - give their support.


The EBA said the bonds should convert when a trigger point of a seven per cent capital ratio is breached, and that they should be deferred for several years to make sure they give long-term incentives.


Meanwhile the European Central Bank promised it would not change accounting standards when it takes over supervision of the sector in November.


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Source: City A.M. (UK)


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