Several factors are helping to lessen the vulnerability related to household indebtedness. Importantly, there has been a series of changes to mortgage lending guidelines. We have also seen a slowdown in credit growth along with higher interest rates.
However, for all the attention paid to CoCos in the last few years, it is even now not clear as a practical matter that an instrument can be developed which would be cheaper than common equity but still structured so as to convert in a timely, reliable fashion.5 Furthermore, as the history of Tier 1 capital under the original Basel Accord teaches, there is considerable risk that once some form of hybrid is permitted, a slippery slope effect ensues, whereby national regulators approve increasingly diluted forms of capital under political pressures.6 Fifth, U.S. requirements for enhanced capital standards should, to the extent possible, be congruent with international standards.