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Bank risk-taking: are contingent convertibles a resolution mechanism?

Abstract : CoCos (contingent convertibles) are recent hybrid securities which are converted into equity when banks are in need of a recapitalization. Our model derives an optimal capital structure endogenously while also allowing for bank risk choice. It shows that CoCos significantly reduce their probability of failure although they cannot completely protect banks against bankruptcy. Moreover, they may destroy wealth due to greater incentives for shareholders to risk-take.
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https://hal-uphf.archives-ouvertes.fr/hal-02926868
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Submitted on : Tuesday, September 1, 2020 - 10:35:02 AM
Last modification on : Wednesday, October 20, 2021 - 9:58:25 AM

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  • HAL Id : hal-02926868, version 1

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Christine Maati-Sauvez, Jérôme Maati. Bank risk-taking: are contingent convertibles a resolution mechanism?. Revue Sciences de Gestion, Institut de Socio-Economie des Entreprises et des Organisations (ISEOR), 2013, pp.105-124. ⟨hal-02926868⟩

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