"My take-away from the hearing is that they are willing to look at it and we need to come up with a constructive alternative that achieves the regulatory goals but also works for us."
Another banker also thought that the EBA panel had listened to the industry points. "The EBA insists that in a write-up structure, bondholders should be no better off than if they had been converted into shares," he said. "In that case, if a bank can pay dividends, then it should be able to pay its hybrid coupons."
The EBA panel urged the banks to submit their proposals as soon as possible and said that so far, not many comments had been submitted. The deadline for responses is July 4. It is also adamant that whatever suggestions bankers come up with, nothing should compromise in any way the potential for the instruments to absorb losses.
Bankers were also encouraged that the EBA would maybe be prepared to adopt a more lenient approach when it came to write-up structures if the trigger point, currently set at 5.125% of Core Tier 1, was set higher.
One of the bankers suggested, therefore, that Additional Tier 1 instruments with a 7% trigger could rank pari passu with equity holders on the way down but could have an automatic write-up, ahead of equity on the way up.
NON-VIABLE UNCERTAINTY
Meanwhile, the EBA panel agreed there was still considerable uncertainty around where the definition of the point of non-viability will sit.
A definition is included in the draft of the Crisis Management Directive released by the European Commission last week, and bankers hope this is where it will ultimately reside. That would allow for bank capital instruments to be captured from 2015 by a statutory regime, once the Directive is implemented.
However, to be on the safe side, EBA's David Guillaume said, as a supervisor, he would advise banks to issue securities with point of non-viability wording in the contract.
The EBA will submit its proposals to the European Commission in November. While the Commission could disagree with the technical standards and ask the EBA to redraft them, bankers believe that the November version will most likely be the final one.
"There is a reason the Commission subcontracted it to the EBA and that's because they are the experts so I think in practice, it will be a formality," said a hybrid banker.
(Reporting by Helene Durand, Editing by Alex Chambers, Julian Baker)
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