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The vanishing point


Many are looking for it, but no bank has found it — does the point of non-viability even exist?

The point of non-viability (PONV) is very loosely defined as the point at which a regulator says a bank “meets the conditions for resolution”, or “would cease to be viable” if bonds were not bailed-in.

There is no obvious metric for working out the PONV, and the measure could have as much to do with risks to liquidity and funding as it does with depleted capital ratios.

Moody’s thinks the PONV might be close to a common equity tier one level of 5.125%, while Fitch thinks it will likely vary from bank to bank and jurisdiction by jurisdiction.

Since the bank recovery and resolution directive has been in place, market participants have had plenty of examples of banks coming close to lifting the mask on this phantom figure.

Banca Monte dei Paschi di Siena ran into trouble when investors would not back its share sale, leading the bank to file for a so-called “precautionary recapitalisation” by the state.

Veneto Banca and Banca Popolare di Vicenza have found themselves ailing, and appear to be trying to hook themselves up to a drip feed of public funds.

And in the UK, the capital-strapped Co-operative Bank seemed to narrowly escape intervention from the Bank of England when it put itself up for sale this month.

Despite the obvious concern in some cases about funding, liquidity, capital and viability regulators have not said that any one of these names has breached the PONV.

Perhaps the PONV should more accurately be defined as a regulator’s right to decide what it wants. Either that, or it should cease to exist.

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