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By Philippe Legrain ADD COMMENTS

What bank investors need from authorities is clarity. A concerted,
pan-European drive to inject capital might provide it. As US fund
manager John Hussman has suggested, that injection could be achieved
via a “super-bond”, countable as capital and subordinate to customer
deposits, but ranking ahead of both shareholders and even senior
bondholders in the event of bankruptcy. That super-bond would pay a
high rate of interest, giving banks an incentive to switch to cheaper
funding. But interest payment could be deferred until the bank hit a
minimum level of profitability.

From Lex in today’s FT. Read the proposal in full here.

Posted 07 Oct 2008 in Blog, Europe, Finance

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