Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/44598
Authors: 
von Furstenberg, George M.
Year of Publication: 
2011
Series/Report no.: 
Discussion Paper Series 2: Banking and Financial Studies 2011,01
Abstract: 
This study examines the promise of reducing expected resolution costs of financial institutions through either voluntary or mandated addition of contingently convertible debt securities to their long-term financing mix. I model the stochastic process by which an initially very well capitalized banking firm may come to violate its minimum capital maintenance requirement. Conversion of cocos then provides a second chance because the firm's initial capitalization is restored. Although regulatory insolvency remains a distant threat, the expected reductions in the cost of bankruptcy and hence the cost of capital are such that cocos may win a place in the liability structure of financial institutions without the need for mandates.
Subjects: 
financial reforms
regulatory insolvency
contingent capital
bank regulations
cocos
JEL: 
E44
G33
G38
ISBN: 
978-3-86558-679-7
Document Type: 
Working Paper

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