Bank Debt
From Open Risk Manual
Definition
Bank Debt denotes the range of types of medium to long term financing employed by banks / financial institutions (that is, excluding short term financing and deposits)
Types
There is a range of Bank Debt products:
- Covered bonds are essentially asset securitisations that benefit also from a bank guarantee. The bank finances a specific pool of assets
- Unsecured debt (as with any corporate)
- Subordinated bonds (as with any corporate)
- Contingent Convertibles (convert to equity upon breach of regulatory capital limits)
Credit Risk
The credit risk associated with bank debt is in some respects similar to other corporate debt. A key difference is that the business model of a bank is normally significantly more diversified via exposure to a large pool of assets, thereby bank debt is susceptible to systemic risks
Issues and Challenges
- Ability of investors to analyse credit risk (disclosure of risks)
- Adequacy of Regulatory Capital
