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* Bondholders call for review of rescue plan, timetable
* Investor Taber says Co-op not a systemic risk
* He says false market was created in Co-op bonds
* Says more than 1,300 bondholders on board
By Matt Scuffham and Aimee Donnellan
LONDON, July 9 (Reuters) - A group of the Co-operativeBank's retail bondholders who are fighting a painfulrescue plan has called on Britain's financial regulator torethink its demands for the lender to plug a 1.5 billion pound($2.2 billion) capital shortfall.
The bank's parent, the Co-operative Group, hascome up with a "bail-in" rescue model, making bondholders swaptheir debt for new bonds and equity at a discount of at least 30percent, subjecting them to losses of 500 million pounds.
Mark Taber, an investor who challenged a similar move byBank of Ireland in 2011, urged the regulator to "reviewthe requirement and timetable that it has imposed on the bankand the plan which it has agreed with the bank".
In an open letter to Andrew Bailey, head of the PrudentialRegulation Authority (PRA), Taber criticised the PRA forimposing a core capital requirement of 9 percent on Co-op Bank.
This is supposed to be imposed only if a lender's potentialfailure poses a threat to the economy, according to PRA rules.However, Taber said the Co-op was not systemically important andthe regulator's imposition of the requirement was arbitrary.
The PRA on Tuesday confirmed it had received the letter andsaid it would respond to bondholders' concerns in due course.
Taber also said there had been a false market in Co-op bondscaused by the regulator's failure to disclose concerns about thebank's financial health.
He cited evidence provided by Bailey to lawmakers last week,in which he said the regulator was aware two years ago that theCo-op Bank needed to raise capital. Taber questioned why nopublic disclosure was made at the time and why the regulator"seemingly did nothing to take action".
INVESTOR ACTIVISM
Taber said more than 1,300 bondholders had been in touchwith him since the Co-operative Group, announced its plans toaddress the shortfall last month.
The group, Britain's biggest customer-owned business, iscontributing around one billion pounds to rescue plan.
The investors want it to take on more of the losses. Many ofthem lent money to the bank through securities called permanentinterest-bearing shares (PIBS), which pay dividends of up to 13percent a year.
U.S. law firm Brown Rudnick is working with Taber on behalfof Co-op's retail bondholders. Two other bondholder groups arealso opposing the rescue plan, one comprising hedge funds andanother being led by the Association of British insurers.
The Co-operative's outstanding subordinated bonds have risenby as much as a quarter of a point over the past day.
Bankers say Co-operative bondholders appear to be followingsimilar investor activism strategies that were applied to Bankof Ireland, AIB and Anglo Irish Bank during Ireland's financial crisis.
"Irish regulators used a dirty stick to coerce investors andI think there is definitely a will in the UK to take a similarline," said a London-based banker. "Investors should be clubbingtogether in this way but I have limited optimism about theirchances of being successful."
