The call option is already popular in tier two format, where issuers can use five year callable structures to mirror the way in which the capital amortises — tier two bonds lose 20% of their loss-absorption eligibility every year for the last five years of their duration.
But recently US banks have been piling into one year callable senior bonds in both dollars and euros, with the major banks pricing about 15 deals between them since late August.
It doesn’t take much of a stretch to see why this is also a good idea.
Senior funding is no longer really senior funding, as many instruments are issued solely for capital purposes. And in the US, TLAC-eligible senior bonds stop counting towards regulatory ratios one year before they mature.
But the recent trend shows the size of the gulf that has opened up between Europe and the US in terms of drawing up coherent post-crisis banking frameworks.
European banks can only sit and watch as their US peers optimise their senior stacks for TLAC purposes, because EU member states are still having to wait for guidance on which types of senior funding will count as regulatory capital.
Some bankers believe callable structures will play an important part in the future of the senior unsecured asset class, and the mass of deals across the past two weeks seems only to confirm that view.
US banks can start shaping that future today, while Europe’s banks are left rooted in the past.