Banks stop offering long-term bonds over Basel III uncertainty

.......However, under Basel III norms, a bank’s debenture holders must also bear part of the risk. And, in case a bank has to be rescued by tax payers, these bonds get converted into equity, which most likely means they would be worthless. This clause is known in the Basel III norms as the “loss absorption mechanism”. It ensures that the bank continues to function instead of being forced to pay bond holders, triggering a liquidation. For this reason, debenture investors are asking for a risk premium, which in turn pushes up their cost for the banks...............

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