by Mariana Santibáñez
Preparing the Way
Banco do Brasil has broken new ground with a Basel III-compliant hybrid perp. Did it act too soon, or will this instrument be a model for others to follow?
When Banco do Brasil issued its hybrid perpetual in January,
it became the first Latin American financial institution to
test drive an instrument that may act as a model for others
seeking Tier 1 capital ahead of the implementation of Basel III
By issuing a deeply subordinated instrument that adjusts
with changes in the regulatory landscape, Brazil's largest bank
was certainly forging new ground. But it was also taking risks
with what arguably was a premature step in tapping the loss
absorbing Tier I capital that policymakers hope will form part
of a stronger global regulatory system going forward.
How the Brazilian central bank will adapt local regulations
under the Basel III framework is still a big unknown, which is
precisely why Banco do Brazil's flexible structure makes sense.
It is true that Brazilian banks will likely need to adjust
their capital base to the...
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