To say bank bonds had a rocky start to 2016 would be an understatement. Over the first weeks of January, the market’s significant gains from last year were essentially wiped out, with European issuers hit particularly hard. Undoubtedly, macroeconomic issues stemming from China’s slowdown and the oil rout were partially to blame. But so too was the dawning realisation that a growing number of reforms mean even senior ranking bonds can be converted to equity if the bank runs into trouble.

Botched bail-ins by Italy and Portugal under the EU’s new resolution rules were cited as the major regulatory culprit. But those principles reach far beyond the Bank Recovery and Resolution Directive (BRRD). The seemingly insatiable desire of rulemakers to make bank-issued instruments as equity-like as possible is, in fact, epitomised by the total loss-absorbing capacity (TLAC) standards released by the Financial Stability Board (FSB) late last year.

Originally published in International Financial Law Review on May 1, 2016.