Hybrid Securities are debt securities with traits borrowed from equities

Hybrid securities are securities that have features of both debt and equity.

Wall Street 1929
Wall Street 1929

The classic example of a hybrid instrument is a convertible bond. This is, generally, a corporate bond with a condition attached to it. This condition states that if the equity shares of the corporation issuing the bond hits a certain valuation in the market, the bondholder will be allowed to exchange the bond for a certain number of shares. The number of shares is determined by the bond’s principal value, which is almost always $1000, and how many shares that principal could buy. For a buyer of bonds, this reduces the risk of losing out on exposure to equity if the issuing corporation does very well, without losing the status of a bond, which, as a debt, will be paid back before assets are distributed to non-debt liability holders. For the issuing corporation, usually the bonds hold a slightly lower interest rate than it would otherwise.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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DFAST Means Dodd-Frank Annual Stress Test

Dodd-Frank Annual Stress Test is a simulation that tests the financial system’s ability to remain solvent. It was enacted when Congress enacted Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly know as the Dodd-Frank Act, named for its sponsors Senators Chris Dodd (Connecticut) and Barney Frank (Massachusetts).

Scenarios simulated are not arbitrary. There are 28 variables and they are based on historical economic crises. The variables are such things as rise in unemployment, rise in oil prices, rise in interest rates, fall of the GDP or a sudden equity market crash. National banks and federal savings associations are categorized into two for the simulation: those with more that $50 Billion in assets and those with less. Those with less than $10 Billion are exempt from participating in the Test.

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About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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BHC Mean Bank Holding Company

Bank Holding Company is a company that owns one or more subsidiary banks. There is no regional designations for such a company, but often they are interstate and international. These companies are usually interstate because there is no reason to hold multiple bank brands within a given state. Many of these companies are international, reaching both investors and clients abroad.

Bank Holding Companies are supervised by the Federal Reserve.

chevy chase capital one

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About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.