Defining Hybrid Capital

In the current environment of bank recapitalisations, it has never been more important for banks to know what capital-raising tools are at their disposal. However, despite the implementation of Basel II in Europe by the introduction of the Capital Requirements Directive ("CRD"), a common approach to the definition and treatment of eligible hybrid capital has eluded European member state regulators.

This in turn means that a level playing field for European banks as they compete for new capital is some way off.

One of the main purposes of the European Commission's recent Public Consultation on possible changes to the CRD is to provide clarity and uniformity as to the treatment of hybrid capital. It builds on the 1998 public statement on hybrid Tier 1 capital by the Basel Committee on Banking Supervision, known as the Sydney Press Release, and follows on from the "Proposal for a common EU definition