Trust Preferred Securities (TruPS) were a type of hybrid security that combined characteristics of both debt and equity. They were issued by a trust and typically paid interest to investors, but were also considered to be a form of preferred stock, meaning that they were junior to other debt issued by the issuer and that the dividends paid to the investor was tax deductible by the issuer.TruPS were popular with banks and other financial institutions as a way to raise capital because they counted as Tier 1 capital, which is a measure of a bank's financial strength. This is because regulators treated the securities as equity for regulatory capital purposes, but as debt for tax purposes. This made it an attractive way for banks to raise capital, as it didn't increase the debt on the balance sheet, but it also improved the bank's capital ratios.However, after the 2008 financial crisis, regulators started to review the treatment of TruPS as Tier 1 capital, and in 2013 the Basel III regulations were adopted, which eliminated the ability of banks to count TruPS as Tier 1 capital, effectively making them less attractive to banks. As a result, the issuance of
TruPS has declined significantly in recent years.It's worth noting that TruPS is a complex security and its characteristics and regulations may vary depending on the country. It's important to consult with a financial advisor or a securities attorney before investing in TruPS.
