The Hong Kong Monetary Authority issued a statement supporting the traditional credit hierarchy, in the midst of ongoing worries about Credit Suisse’s AT1 wipeout.
Hong Kong’s central bank cited the Financial Institutions (Resolution) Ordinance as the legal basis for the resolution regime in the city with a «clear order in which shareholders and creditors would bear losses».
«Holders of capital instruments (including core equity capital, Additional Tier 1 capital and Tier 2 capital) issued by a financial institution should expect to be treated in resolution in accordance with the priority they would enjoy on a winding up of the institution,» the HKMA said in a statement responding to media inquiries.
«Accordingly, shareholders are the first ones to absorb losses, followed by holders of AT1 and Tier 2 capital instruments.»
Regulatory Divide
While Switzerland’s Financial Market Supervisory Authority (Finma) has come out to defend the write-off due to what it calls a «viability event», regulators elsewhere have supported the traditional credit hierarchy.
This includes watchdogs in the UK, EU and Singapore, where the local regulator said that some losses will be covered by an industry-funded pool.
