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Contingent convertible securities, otherwise known as 'CoCos', are hybrid securities issued by banks as debt instruments (e.g. bonds) and automatically converted into equity shares if a contractually pre-defined 'trigger event' occurs. Their defining characteristics are a loss-absorption mechanism (conversion or write-down) and an activation trigger, either based on a mechanical rule or on supervisors’ discretion. CoCos are regarded positively both by the industry and by regulators. Banks appreciate ...

The financial and economic crisis has been marked by the 'Too big to fail' problem – a number of financial institutions of a size large enough to pose a systemic problem to the economy required public support to continue operations. According to economic research this has led to implicit subsidies and a distortion of competition in banking markets. As part of major reforms of the financial markets, the European Commission has launched a structural reform of the banking sector. In particular, this ...

For the first time, new EU laws regulate the agricultural commodity derivatives markets and their participants. By 1st July 2014, some important technical standards and other instruments that determine the effectiveness and the enforcement of these laws still needed to be decided. This study finds that the price discovery and hedging functions of European agricultural commodity derivatives markets and their related infrastructure in the physical agricultural markets need improvements from the perspective ...

Bitcoin is a digital currency which started circulating in 2009. It was the first form of virtual money to become relatively popular. Bitcoin is public in nature as it maintains a log of all transactions. These are verified by its users in a process called mining. The extent of computing power and energy needed to mine bitcoins is set to increase over time.

After years of financial deregulation, the agricultural commodity price shocks of 2007/2008 and 2010/2011 acted as a catalyst for governments to strengthen the regulation of derivatives markets. It is increasingly recognised, at national and international levels, that financial players influence the volatility of commodity prices on exchanges and in spot markets. Reforms of the legal framework of futures markets are being carried out to: - Provide additional transparency requirements in agriculture ...

The Financial Stability Board proposes to dampen the pro-cyclicality that may be caused by changes in haircuts in repo and securities lending during a crisis, by introducing minimum standards for the calculation of haircuts, in order to stabilise them across the cycle. They are also considering putting a floor under calculations, at least on risky assets that exhibit pro-cyclicality. Higher haircuts would also help curtail the build-up of excessive leverage.

Complementing ongoing regulatory reforms in the European banking sector, the EU has started to consider possible changes to banks' structures.

Under the EU's enhanced cooperation procedure, 11 Member States are discussing plans to introduce a financial transaction tax in 2014. However, a substantial number of clarifications and agreements have yet to be found, raising the risk of missing the deadline.

In many financial markets repurchase agreements (repos) and securities lending agreements benefit from special insolvency treatment which - broadly speaking consists of an exemption from a number of insolvency law mechanisms. In line with FSB Recommendation 13 on repos and securities lending, insolvency treatment of these transactions should not be changed. Instead, the regulators should be given the power to temporarily stay close-out netting, as in bank resolution proceedings. Regulatory haircuts ...

Regulating bankers' bonuses

Glaustai 28-02-2013

Bankers' bonuses have been under debate with the review of the Capital Requirements Directive (CRD IV). The Directive, meant to regulate the amount of capital banks hold, already includes guidelines on the remuneration of bankers, but the European Parliament has sought to introduce a fixed cap on bankers' variable pay proportionate to their fixed pay.