The Great Debate UK
(Refiles on October 19, 2010 to add disclaimer for author's personal investment. Neil Unmack owned Lloyds CoCos when he wrote this article.)
Ever since the financial crisis struck, regulators have argued for an overhaul of bank capital. Contingent capital, which can absorb losses while the bank remains in business, sounds like the solution. But until last week it had only been used by a few distressed lenders.
So the decision by Rabobank -- one of the world's most highly-rated banks -- to issue contingent capital securities is welcome. The Dutch mutual is the first healthy European lender to sell the securities to investors as a new issue. But investors and regulators will need persuading if the idea is to catch on.
Bankers hope contingent capital can replace other kinds of hybrid debt, which are being phased out by regulators.
Just a few months ago, there was widespread alarm in Russia about the state of the country's banking sector.
In June, rating agency Fitch predicted that impaired loans would reach 25 percent of all loans by the end of this year, requiring at least $22 billion in additional capital. Other analysts warned that the final bill could reach $60 billion. But as the smoke clears, it seems increasingly obvious that these concerns were greatly overblown.