LONDON, June 27 (Reuters) – Banks in the European Union could be inflating the value of high-risk debt used to plug gaps in capital buffers intended to provide protection in the event of a crisis, the bloc’s banking watchdog said on Thursday.

Banks began issuing Additional Tier 1 (AT1) bonds, also known as contingent convertibles or CoCos, to bolster their capital after the global financial crisis.

They convert into equity or are written off if a bank’s capital drops below a certain level.