January 05, 2016

What if a holder of a bank bond who loses his investment in a bank tries to sue the regulators?

Sir, I refer to Jim Brunsden’s, Patrick Jenkins’ and Rachel Sanderson’s FT’s Big Read “Bondholders on the hook” January 5.

Suppose a bank that has too much exposure against too little capital to something that is ex ante perceived as safe but that ex post turns out to be very risky collapses.

And suppose reports on the bank indicated that all was fine and dandy because the bank had more than enough capital against risk-weighted assets to meet the Basel Committee's criteria.

So what if a holder of a bank bond that loses his investment goes in front of a judge and argues the failure happened because regulators created set wrong incentives and that they authorized the issuance of confusing information that understated the bank’s real leverage?

I am no lawyer so I have no idea about the final consequences, but I sure would like to see that trial and hear the judge’s opinion when he gets to understand the full extent of what has been going on.

@PerKurowski ©