Coverage: weekly note · Information to 15 June 2026
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TGB Weekly Research Note · 15 June 2026
A Financial Stability Institute brief published on 11 June 2026 argues that restoring AT1's going-concern role rests on dropping writedown, making conversion genuinely dilutive and raising CET1 triggers.
The desk view
The Financial Stability Institute (FSI) of the BIS published FSI Briefs No 32 on 11 June 2026, arguing that AT1 has worked as gone-concern rather than going-concern capital. Its diagnosis is that triggers sit too low, that writedown hands value to shareholders, and that conversion at prices close to the issuance share price does much the same. The remedy: dilutive, market-linked conversion; no writedown or discretionary going-concern triggers; and higher CET1-linked triggers. The brief states its authors' views, not necessarily those of the BIS. It frames reform as the alternative to Australia's phase-out, to be weighed against banks' funding costs, buffer usability and resolution funding.
A going-concern instrument that only works at failure
AT1 is meant to absorb losses while a bank is viable, through an automatic CET1-linked trigger and discretionary coupon cancellation, with a non-viability clause as a secondary resolution role. The brief argues that low triggers, discretionary activation and weak incentives to recapitalise undermine that going-concern function.
The calibration gap is wide. Triggers are set at a minimum of 5.125% CET1, and many jurisdictions require 7%. At end-2024, 14 of 29 G-SIBs faced CET1 requirements above 10% even excluding non-binding buffers, and all 29 faced requirements above 8%. By the time a bank reaches its trigger, it has already depleted much of its buffers.
Credit Suisse reported a CET1 ratio of 12.6% before its October 2022 equity raise, yet its AT1 was written down only once a viability event was declared. Even that raise, of roughly CHF 4 billion, relied on an existing shareholder anchoring a CHF 1.76 billion placement, with much of the rest raised from other existing shareholders at a 32% discount to the market price. FINMA put the AT1 written down at around CHF 16 billion, while shareholders received CHF 3 billion in UBS shares through the merger. No issuer is publicly known to have cancelled an AT1 coupon; coupons were paid without interruption at the peak of the Covid-19 pandemic, when banks in many jurisdictions had to cancel dividends.