Brussels says no to Hungary's EU fund payment practice / economy - 2016, szeptember 30 - 17:44
European Commission officials told Hungarian authorities not to send invoices created in the generous system of advance payments to suppliers because Brussels will not pay these, Portfolio has...
Kategóriák: Economy

Taxpayer should not facilitate risky bank cocos

Bruegel - 2016, szeptember 30 - 16:32

During the great financial crisis, banks appeared to be heavily undercapitalised. Banks had as little as 2 percent equity capital of risk-weighted assets (so-called tier 1 capital) and were allowed to count sub-ordinated debt as capital (so-called tier 2 capital). However, this subordinated debt did not absorb losses, when it was needed during the crisis.[1] To correct for that, the Basel Committee proposed higher and better quality capital for banks in the Basel 3 capital accord. The focus was on Core Equity Tier 1 (CET1) capital, which was increased from 2 to 4.5 percent of the risk-weighted capital ratio. So far, so good.

But then the bank lobby started again. Under pressure from the US, the Basel Committee allowed cocos as additional tier 1 capital (as well as tier 2 capital). These cocos can contribute to 1.5 percent of the risk weighted capital ratio. Cocos are contingent convertible bonds that convert to equity if the regulatory capital ratio drops below a certain pre-determined threshold. More recently, the ECB (2016) has eased banks’ capital burden by replacing a portion of binding requirements with non-binding guidance.[2] This change makes it less likely that banks will face restrictions on dividends, bonuses and additional Tier 1 coupon payments.

Why are cocos so popular with bankers?

The tax-deductibility of interest has spurred the push towards the increasing use of debt as regulatory capital, in an attempt to have the best of both worlds: Telling the regulator that these ‘capital instruments’ can absorb losses, like equity, while at the same telling the taxman that these instruments are debt, so that interest payments can be deducted for corporate tax (Schoenmaker, 2015). The latter reduces the private costs of debt for banks. Cocos are thus an example of having your cake and eat it.

More broadly, Allen et al. (2011) argue for equal treatment of equity and debt for corporate tax purposes. They note that it is not clear why in many countries debt interest is tax deductible at the corporate level but dividends are not. There does not seem to be any good public policy rationale for having this deductibility, which appears to have arisen as an historical accident. If tax deductibility is why there is a desire to use debt rather than equity, then the simple solution is to remove the tax deductibility.

The same policy mistake again

It looks like history is repeating itself. Before the crisis, subordinated debt was promoted by academics because of its disciplinary function (e.g. Flannery 2001). As banks with higher asset risk have to pay higher interest rates on subordinated debt, such debt can induce banks to lower asset risk in order to reduce interest payments. Next, indirect discipline may happen when regulators take prompt corrective actions against banks with high subordinated debt yields or banks unable to roll over subordinated debt. These corrective actions may not only prevent further losses of problem banks, but also stop bank managers from pursuing unsound risk.

But it did not work as envisaged. First, subordinated debt yields were only partly rising, as investors (with hindsight rightly) expected to be bailed out. Next, subordinated debt (and bail-in debt) may work in the case of an idiosyncratic failure, but not during widespread banking crisis as authorities may not want to spread contagion by writing down subordinated / bail-in debt.[3]

Several academics question the financial stability implications of bail-in debt and cocos. Avgouleas and Goodhart (2015) call for a closer examination of the bail-in process, if it is to become a successful substitute to the unpopular bailout approach. They argue that bail-in regimes will fail to eradicate the need for an injection of public funds where there is a threat of systemic collapse, because a number of banks have simultaneously entered into difficulties, or in the event of the failure of a large complex cross-border bank, except in those cases where failure was clearly idiosyncratic.

Similarly, Chan and Van Wijnbergen (2015) show that while the coco conversion of the issuing bank may bring the bank back into compliance with capital requirements, it will nevertheless raise the probability of a bank run, because conversion is a negative signal to depositors about asset quality. Moreover, conversion imposes a negative externality on other banks in the system in the likely case of correlated asset returns, so bank runs elsewhere in the banking system become more probable too and systemic risk will actually go up after conversion. This is a form of information contagion.

These predicted contagion effects have proved to be real. Deutsche was at the centre of the market volatility earlier this year in February when investors grew concerned about the potential for it to stop paying coupons on its additional tier 1 cocos because of a multibillion-euro loss in 2015 (FT, 2016). During February’s sell-off, the market for selling new cocos shut down entirely. Since then, there have been a handful of new sales, most recently from BBVA in Spain and Rabobank in the Netherlands in April.

Cocos thus lead to a direct conflict between micro- and macroprudential objectives. There is an emerging consensus that macro stability concerns should have priority over micro soundness concerns (Schoenmaker 2014). There is a limit to the extent that bail-in debt or contingent convertible capital can replace real upfront equity capital.

Forgone tax revenues

The European coco market was first launched in 2013 and now stands at €171 billion. Table 1 presents an overview of outstanding cocos and calculates the tax savings for banks. All European countries, except for Ireland, allow tax deductibility. Interestingly, also the United States does not allow tax deductibility of interest payments on cocos. Our calculations show that European taxpayers forego up to €2.7 billion in corporate tax revenues, because of the tax deductibility. In particular, the countries with large banks (France, Spain, Switzerland and the United Kingdom) have substantial foregone tax revenues.

!function(e,t,i,n,r,d){function o(e,i,n,r){t[s].list.push({id:e,title:r,container:i,type:n})}var a="script",s="InfogramEmbeds",c=e.getElementsByTagName(a),l=c[0];if(/^\/{2}/.test(i)&&0===t.location.protocol.indexOf("file")&&(i="http:"+i),!t[s]){t[s]={script:i,list:[]};var m=e.createElement(a);m.async=1,m.src=i,l.parentNode.insertBefore(m,l)}t[s].add=o;var p=c[c.length-1],f=e.createElement("div");p.parentNode.insertBefore(f,p),t[s].add(n,f,r,d)}(document,window,"//","d4522123-2b9b-4ee5-a957-ba855f644075","interactive",""); Sweden is reversing the policy mistake

Sweden is now the first to correct the policy mistake. In the Budget Bill for 2017, the Swedish government proposes a ban on deductions for interest expenditure on certain subordinated liabilities, such as cocos (Sweden, 2016). The Swedish taxpayer will thus stop facilitating Swedish bank cocos.

The abolishment of tax deductibility will reduce the popularity of cocos. On the policy front, we recommend other countries to follow the example of Sweden (as well as of Ireland and the United States).

The author would like to thank Bennet Berger for excellent research assistance.

[1] Subordinated debt only absorbs losses in case of insolvency, but not in the case of bailout, which was the commonly used instrument of government support during the crisis.

[2] Supervisors can set additional capital requirements (pillar 2 add-ons). The ECB has decided to split these Pillar 2 add-ons in a hard requirement and guidance. If the pillar 2 requirement is not met, the distribution of profits is capped by the so-called maximum distributable amount. However, if Pillar 2 guidance is not met, banks can still distribute profits in the form of dividends and additional tier 1 coupon payments.

[3] A good example is ING: doubt arose about the interest payment on the subordinated debt of ING at the height of the financial crisis in Autumn 2008. Some investors questioned publicly whether ING would meet the upcoming interest payments on its subordinated debt. Although ING meant to meet the next interest payment, the supervisor did not permit ING to say so as payments on subordinated debt are conditional on meeting certain capital ratios at the time of payment. After a sharp drop in the share price, the supervisor gave special permission to ING to announce that it was planning to meet its upcoming interest payments (Avgouleas et al. 2013).



Allen, F., Beck T., Carletti, E., Lane, P., Schoenmaker, D., and W. Wagner (2011), ‘Cross-Border Banking in Europe: Implications for Financial Stability and Macroeconomic Policies’, London: CEPR Report.

Avgouleas, E., C. Goodhart and D. Schoenmaker (2013), ‘Bank Resolution Plans as a Catalyst for Global Financial Reform’, Journal of Financial Stability, 9, 210-218.

Avgouleas, E. and C. Goodhart (2015), ‘Critical Reflections on Bank Bail-ins’, Journal of Financial Regulation 1, 3-29.

Chan, S. and S. van Wijnbergen (2015), ‘Cocos, Contagion and Systemic Risk’, CEPR Discussion Paper No. 10960.

European Central Bank (2016), Frequently asked questions on the 2016 EU-wide stress test, Frankfurt, available at:

Financial Times (2016), ECB is having second thoughts on ‘coco’ bonds: Bankers say hybrid securities could undermine a lender’s financial position in a crisis, 24 April.

Flannery, M. J., 2001. The faces of “market discipline”. Journal of Financial Services Research, 20 (2/3), 107-119.

Schoenmaker, D. ed., 2014. Macroprudentialism. VoxEU eBook, London: CEPR.

Schoenmaker, D. (2015), ‘Regulatory Capital: Why Is It Different?’, Accounting and Business Research, 45, 468-483.

Sweden (2016), Budget Bill for 2017: Reform and Financing Table, September, available at:

Kategóriák: Economy

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EZB-Chef Draghi enteignet die Sparer nicht

Bruegel - 2016, szeptember 30 - 10:50

This op-ed was originally published in Manager-Magazin.

Wenn sich EZB-Präsident Mario Draghi den unbequemen Fragen der Bundestagsabgeordneten stellt, werden die Hauptkritikpunkte sein, dass die EZB-Politik die langfristigen Zinsen übermäßig nach unten treibt, somit den deutschen Sparer enteignet und die Finanzstabilität gefährdet. Das Fazit vieler Politiker lautet: Der EZB-Präsident liegt falsch mit seiner Politik. Es sei an der Zeit, gegenzusteuern und die Zinsen anzuheben. Wirklich?

Zunächst die Fakten: Die Inflationsrate im Euroraum ist seit Anfang 2011 rückläufig und hat sich erst seit Beginn des „Quantitative Easing“-Programms bei um die 0 Prozent stabilisiert. Die Kerninflationsrate, also die Inflationsrate, die volatile Schwankungen von Energie- und Lebensmittelpreisen herausrechnet, ist ebenfalls stabil bei weniger als 1 Prozent. Die gemessene Inflation ist also weit unter dem Inflationsziel der EZB von knapp unter 2 Prozent. Auch die Inflationserwartungen sind eher schwach und liegen weit unter der Zielmarke.

In einer solchen Situation sollte die Geldpolitik ihre Zinsen möglichst niedrig halten, um Anreize für Investition zu geben und Sparen relativ unattraktiv zu machen. Dies ist die normale Operation der Geldpolitik. Die EZB geht aber weiter und beeinflußt direkt die langfristigen Zinsen. Sie tut dies, da die kurzfristigen Zinsen nicht weit unter null fallen können.

Der Realzins ist nicht niedriger als vor fünf Jahren

Ist die Nutzung dieser Instrumente im Euroraum unangemessen? Ist die EZB dafür verantwortlich, dass Sparer im Euroraum kaum noch Zinsen erhalten? Zunächst einmal ist festzuhalten, dass der aktuelle Realzins, also der reale Ertrag, den eine Investition erbringt, bei weitem nicht so stark gefallen ist, wie es der Nominalzins suggeriert. Da die Inflationsraten massiv gefallen sind, ist der Realzins heute vergleichbar mit dem Zins vor etwa fünf Jahren. Dank der geringen Inflation leidet der Sparer also weniger, als es den Anschein hat. Richtig ist aber auch, dass der Realzins niedrig ist.

Die Antwort auf die Frage, ob die EZB eine übermäßig expansive Politik macht, hängt letztlich vom sogenannten „Gleichgewichtszins“ ab, bei dem Sparen und Investitionen im Ausgleich sind und die Inflation in Höhe der Zielmarke liegt. Es gibt gute Gründe dafür, dass dieser Gleichgewichtszins derzeit negativ ist, der langfristige Zins fällt bereits seit den 1980er Jahren. Die EZB Politik ist somit angemessen, um trotz des negativen Gleichgewichtszinses einen Beitrag zur Inflation zu liefern.

Die EZB stößt an ihre Grenzen

Eine andere Frage ist es, ob die EZB Politik unangemessene Risiken für die Finanzstabilität mit sich bringt. Bis dato gibt es aber eher wenige Indikatoren, die auf ein Stabilitätsrisiko hinweisen. So entwickeln sich die Kreditvolumina in der Eurozone weiterhin schwach. Allerdings ist es wahr, dass die Profitabilität von Banken durch die niedrigen Zinsen leidet. Insbesondere können Banken negative Zinsen nicht an ihre Kunden weitergeben, so dass ihre Margen fallen. Vor diesem Hintergrund scheint es nicht angemessen, die Zinsen noch weiter nach unten zu treiben. Schließlich hat die EZB nicht das Recht, unangemessen die Struktur des Bankensystems zu verändern. Die EZB scheint an ihre Grenzen zu stoßen. Zwar sollte sie ihr Kaufprogramm weiter aufrechterhalten, aber ein weiteres Absenken der Zinsen würde Risiken bergen.

In einer Liquiditätsfalle sind andere wirtschaftspolitische Maßnahmen gefragt. So fordert der EZB Präsident seit Jahren zu Recht, dass Strukturreformen und Haushaltspolitik der nationalen Regierungen eine größere Rolle spielen müssen als die Geldpolitik der Notenbank. Strukturreformen sollten insbesondere neue Märkte öffnen und somit Anreize für neue private Investitionen liefern. Hierbei sind alle Regierungen in der Eurozone gefordert.

Auch die deutsche Politik sollte in der aktuellen Situation die EZB unterstützen, statt ihr die Arbeit zu erschweren. Die Investitionen in Deutschland sind schon seit Jahren schwach und ein Leistungsbilanzüberschuss von fast 9 Prozent zeigt, dass es wesentlich mehr Ersparnisse als Investitionen gibt. Gleichzeitig steigen auch die Löhne und Gehälter eher schwach.

Die Regierungen müssen handeln

Es wäre sinnvoll, mit gezielten Reformen Anreize für mehr Investitionen etwa im Dienstleistungssektor zu geben. Deutschland hinkt international in diesem Bereich immer noch hinterher. Gleichzeitig könnte die Regierung die Budgetüberschüsse nutzen, um Unternehmen Investitionsanreize in Deutschland zu geben. So würden beispielsweise generösere Abschreibungsmöglichkeiten die Investitionssituation verbessern. Mit öffentlichen Investitionen könnte die Infrastruktur verbessert werden, was wiederum zusätzliche private Investition ermöglichen würde.

Diese Maßnahmen würden letztlich auch den deutschen Arbeitnehmern helfen, deren Löhne durch einen verbesserten Kapitalstock steigen würden. Möglich wäre auch, die Einkommenssteuer im Niedriglohnbereich zu senken, um die Kaufkraft der Haushalte zu stärken und den Konsum zu stützen, wie kürzlich von der OECD angeregt.

All diese Reformen würden dazu beitragen, dass deutsche Sparer wieder höhere Erträge erwirtschaften können. Denn reale Erträge hängen von guten wirtschaftlichen Strukturen ab. Die Bundestagsabgeordneten sollten also zunächst Reformen von der eigene Regierung einfordern, bevor sie den EZB-Präsidenten kritisieren.

Kategóriák: Economy

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