“The “bail-in” bonds issued by banks to absorb losses in the case of financial difficulty are much riskier than first thought, Standard & Poor’s has warned, as it announced plans to cut its ratings on the instruments.”

“The credit rating agency’s move could push up the cost of issuing these bonds for banks, which have been using them to increase their capital levels ahead of regulators’ stress tests in Europe and the US.”

“‘S&P said on Thursday: “We are signalling potential downgrades (by at least one notch) of securities that banks have been issuing in record numbers to meet new regulatory requirements.'” 

“Bail-in bonds – also known as hybrid bonds or “wipeout bonds” – can be written off or converted into equity if a bank’s capital falls below a set “trigger” level. But banks also have the option of stopping interest payments on hybrid debt if they face a capital shortage.”

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Read full Financial Times article here.