As a follow-up to that story, I wanted to look at the basic question of trust preferred securities (TruPS) as Tier 1 capital and how it came to be, within 15 years, a policy that went from promising and widely used to legally phased out.
Seemed pretty basic: who put it forth and how did this even become policy? Again, not to blame and finger-point, but so we can understand and learn from it to avoid similar issues in the future. (Another thing to file under basic: how are psychology and sociology not a factor in considering policies?)
After all, in the end TruPS did seem to be an indicator of troubles:
“Institutions that relied on TruPS for regulatory capital were financially weaker for it, took more risks, and failed more frequently than those that did not.” FDIC Supervisory Insights, Winter 2010
