Basel bank rules hit insurers

Bob Penn, regulatory attorney at Allen & Overy, has warned that proposals from the Basel Committee on Banking Supervision, could stop insurers holding bank-issued debt as an investment, the FT reports.

The plans suggest bank debt holders – including hybrid instruments - would have to take losses or have that debt converted into equity before any government rescue could take place.

Insurers are required not to hold equities. “If all bank debt becomes mandatorily convertible, insurance companies and debt funds may no longer be able to hold bank debt – with potentially disastrous consequences for the availability and pricing of bank debt,” said Penn.

The Basel Committee wants suggestions about how to address the issue.