Singapore reaffirms creditor hierarchy following Credit Suisse AT1 wipeout

Equity holders will absorb losses before AT1 and Tier 2 bondholders, MAS said.

The Monetary Authority of Singapore (MAS) reaffirmed that it will stick to the financial hierarchy regarding which investors will shoulder losses in the event that a financial institution (FI) collapses.

The equity holders will absorb losses before holders of additional tier 1 (AT1) and Tier 2 capital instruments, MAS said in a statement.

“Creditors who receive less in a resolution compared to what they would have received had the FI been liquidated would be able to claim the difference from a resolution fund that would be funded by the financial industry,” MAS said in a press release.

The creditor compensation framework will remain the same even in the “exceptional” situation where MAS will have to depart from the creditor hierarchy in order to contain the systemic impact of an FI’s failure, the financial regulator said.

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The statement comes days after Swiss banking giant Credit Suisse wrote down its AT1 bonds to zero.

Singapore reminded its banks offering and distributing AT1 bonds to make accurate and clear disclosure of key product features and risk to investors, and for investors to exercise due care in their selection of investment products.