Time for coco bonds before bed?

Synopsis

Welcome back to FT Markets, where the focus is on the recent regulatory changes affecting Europe's banks and the financial system. A significant number of new rules passed in Brussels aim to enhance safety and prevent taxpayers from bearing the costs of future bailouts. One notable outcome of these regulations is the rise of Coco bonds, which serve as a financial cushion during times of stress. These bonds are controversial, with some investors expressing concerns about their safety and the risk of losing money. Philip Bodo, a managing director and bank finance specialist at Pimco, discusses the popularity of Coco bonds, describing them as instruments that provide insurance against financial disasters. He explains that Coco bonds can convert into equity during crises, offering a layer of absorbency to protect banks and their creditors. The issuance of these bonds has surged, particularly following a directive from the European Commission in June 2014 that implemented Basel regulations into European law, driving demand for these complex financial instruments.