BoE’s Tucker-CoCos could transform bank landscape

November 16, 2009

Bank of England policymaker Paul Tucker   LONDON, Nov 16 (Reuters) – Contingent capital could provide a useful form of “catastrophe insurance” for the banking sector if adopted widely, Bank of England Deputy Governor Paul Tucker said on Monday.
   Tucker said such instruments — which convert into common equity when a bank runs into trouble — could ensure the private sector bore the cost of future banking crisis, rather than taxpayers.
   “If CoCos could form a material part of recovery plans the landscape might just be transformed,” Tucker told a conference in Belgium.
   He did not touch on current economic conditions or the monetary policy outlook.
   Tucker reviewed the various components of a crisis management package for financial institutions and said the one common element was the need to preserve core services through periods of extreme stress without bailing out equity holders.
   He said the central bank’s role as lender of last resort was one area where a framework existed ahead of the crisis, but this needed to be refined, particularly with regard to eligible  collateral.
   “Although central banks need to be ready to lend against a wide range of collateral, we do still need to be careful about precisely what we take,” Tucker said.
   He said work was underway at the BoE and the European Central Bank the to develop criteria for the structure of securitisations that it would accept in the future.
   To view the complete speech, please click on: (Reporting by Christina Fincher and Fiona Shaikh, editing by Mike Peacock)
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Monday, 16 November 2009 08:43:20RTRS [nLG655996 ] {C}ENDS

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