London/Milan: Banks could face future funding problems if regulatory uncertainty over their hybrid bonds persists, bankers said after an Italian bank took the unusual step of not redeeming an existing hybrid security because it was unclear whether a replacement bond would be viewed as favourably by regulators.
Last week, UBI Banca of Italy became the first bank not to repay its hybrid on the first call date, due next month, because of this uncertainty. Hybrids, which contain characteristics of both equity and debt, form a key part of banks' regulatory capital. But how their contribution to capital will be calculated in future is currently the subject of intense discussions among international regulators as part of the wider Basel Committee debate on how much capital banks must hold.
UBI Banca told the Fin-ancial Times that the bank had decided not to call the securities until it had a better understanding of what the new rules might be for capital held by banks.
— Financial Times
