The Centre for Economic Policy Research (CEPR) Research Policy Network (RPN) European Financial Architecture, in collaboration with SAFE (Sustainable Architecture for Finance in Europe), will host a web series on the "Financial Regulation in the Era of Fragmentation, AI, and Geopolitics". The series will discuss how financial regulation can be made simpler, more coherent, and more effective. The series will explore key areas where reforms may improve both resilience and efficiency. We invite you to attend
Session 1: ADDITIONAL TIER 1 DEBT REFORM
Tuesday 31 March, 17:00 CEST, online
Presenter: Enrico Perotti, University of Amsterdam
Discussant: Martin Oehmke, LSE
Moderator: Loriana Pelizzon, SAFE
Financial regulation has expanded significantly since the global financial crisis, helping to strengthen bank resilience and protect financial stability. Yet the resulting framework has also become increasingly complex, with overlapping rules, fragmented supervisory responsibilities, and unintended barriers to financial integration. Recent debates in Europe therefore focus not only on tightening regulation but also on how to simplify and rationalise the regulatory architecture while preserving resilience.
Abstract: EU bank regulation under Basel III ensures bank solidity but often creates barriers to EU financial integration. Additional Tier 1 contingent convertible debt is designed to provide relief, but historically it has not been able to absorb risks. AT1 should have a much higher trigger for conversion, and conversion should be activated by a supervisory decision when the bank is deemed viable but undercapitalised. These interventions should be triggered on a timely basis to prevent forbearance, while respecting property rights of investors against excess conversion.
