The Swiss Federal Administrative Court’s recent ruling on the Credit Suisse AT1 bond writedown has sent ripples through global financial markets, forcing a reassessment of the credibility of loss-absorption instruments. In March 2023, FINMA’s decision to write down CHF 16.5 billion of AT1 bonds—one of the first high-profile uses of such discretionary power in a systemic bank resolution—sparked immediate controversy. This week, the court’s judgment that the writedown was unlawful has only intensified the debate. The ruling not only challenges the legal basis for FINMA’s actions but also casts doubt on the predictability and fairness of AT1 bond writedowns in future crises.
This raises a central question: What does this ruling mean for the credibility of AT1 bonds? To answer this, we examine the price reactions of a select set of AT1 bonds issued by Swiss and European Global Systemically Important Banks (G-SIBs), comparing them with the performance of bail-in bonds from the same institutions. By analyzing these market responses, we can gauge how investors are reassessing the risks and potential rewards of holding AT1 instruments in the wake of this landmark decision.

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