Ever since the financial crisis, regulators have been debating how much capital banks should hold on their balance sheet and in what form. Last October, the Swiss announced their views on the topic. Systemically important Swiss banks, in other words Credit Suisse and UBS, would have to hold total capital equivalent to 19% of risk-weighted assets on their balance sheets, including 9% of contingent capital – bonds that convert into equity when certain trigger points are breached.
The ‘Swiss finish’, as it quickly became known, prompted a flurry of debate. Global and local bankers as well as investors grappled with how contingent convertible capital instruments (CoCos) would work and who would buy them.
