Australia and New Zealand Shadow Financial Regulatory Committee – ‘Bail-In’: Not a Panacea

Author: . . . . . . .

The Australia-New Zealand Shadow Financial Regulatory Committee (ANZSFRC), an independent group of senior finance academics, today released Statement No. 13. Today’s Statement addresses the topic of systemically important banks’ issuance of “bail-in” securities to assist in preventing financial crises.

While the Committee believes that high total loss-absorbing capacity (TLAC) is desirable, it is concerned that achieving this through the use of bail-in securities may, if bail-in occurs or is likely to occur, aggravate crisis situations. The Committee is also concerned that investors in bail-in securities are inadequately informed regarding the risks involved, and recommends that better disclosure is urgently required. Bail-in securities might enhance market discipline and improve managerial incentives (particularly if bank remuneration were linked to the performance of these securities). However, the Committee is not convinced that there are net benefits from requiring the issue of bail-in securities rather than higher core capital.

Download ANZFRC Statement No.13: Bail In Not a Panacea

The ANZSFRC meets approximately twice every year in one of the major cities in Australia and New Zealand. The ‘shadow’ function of the Committee is related to its purpose of following and analysing critically the existing and evolving regulatory framework for financial institutions and markets. The Committee is fully independent of the providers, regulators and supervisors of financial services whose behaviour it aims to evaluate.

Members of the ANZSFRC at the meeting which produced this statement were:

  • Professor Christine Brown (Monash University)
  • Professor Kevin Davis (University of Melbourne and Australian Centre for Financial Studies)
  • Professor Robert Faff (University of Queensland and Australian Institute of Business and Economics)
  • Professor David Mayes (Auckland University)
  • Professor Deborah Ralston (Monash University and Australian Centre for Financial Studies)
  • Professor Michael Skully (Monash University)
  • Professor Alireza Tourani-Rad (Auckland University of Technology)

For more information on the ANZSFRC click here