medium · FRM Part 2 Current Issues
Following the Swiss AT1 episode, authorities in the United Kingdom and the European Union issued public statements to clarify their stance.
What was the central message of these clarifications?
- That common equity remains the first layer to absorb losses, and the statutory creditor hierarchy will be respected in their jurisdictions.
- That they intended to move swiftly to abolish the entire AT1 capital asset class outright in order to prevent similar shocks.
- That they would formally adopt the Swiss approach going forward, writing down AT1 bondholders ahead of common equity in future rescues.
- That AT1 bonds issued in the UK and the EU are now effectively guaranteed by their respective governments to prevent depositor-driven bank runs.
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