Contingent convertible bonds and subordinated debt of euro area credit institutions

Abstract

The progressive entry into force of the new bank capital accord, known as Basel III, and the approval of the new regulations on the recovery and resolution of credit institutions in the European Union are increasing the need for credit institutions to have a sufficient capital buffer to absorb potential losses. In order to meet these legal requirements, European banks have, in recent years, issued contingent convertible bonds and subordinated debt. This article analyses the main characteristics of these hybrid instruments. It first presents the information available on the volumes and the numbers of issues and issuing institutions, and then analyses issuance costs and market prices of outstanding issues, paying particular attention to Spanish institutions’ issues