http://www.criticaltwenties.in/economicsocialpolicy/predicting-the-next-crisis-what-dont-we-know-we-dont-know Powered by Webshore Thu, 02 Apr 2015 16:34:10 +0000 hourly 1 http://wordpress.org/?v=3.3.1 http://www.criticaltwenties.in/economicsocialpolicy/predicting-the-next-crisis-what-dont-we-know-we-dont-know#comment-2595 Anisha Tue, 15 Feb 2011 14:08:22 +0000 http://www.criticaltwenties.in/?p=2036#comment-2595 Mandar, I guess you’re referring to contingent convertible capital. I think CoCos are potentially interesting but I’m not sure to what extent they can eliminate the probability of financial distress entirely. The moment investors are worried about a crisis, we will see a firesale of the CoCos. If the trigger is defined in terms of equity prices, then we will see huge downward pressure on the share price of the distressed institution. The creation of a trigger will always allow investors to bet on outcomes when the the institution approaches the trigger. I think what could be interesting is the use of bail-in capital, where creditors are forced to pick up some of the losses of financial institutions. I think it’s unfortunate that tax payers are seen to be the first buffer against losses, even before creditors, just because governments are scared of the market vigilantes. Mandar, I guess you’re referring to contingent convertible capital. I think CoCos are potentially interesting but I’m not sure to what extent they can eliminate the probability of financial distress entirely. The moment investors are worried about a crisis, we will see a firesale of the CoCos. If the trigger is defined in terms of equity prices, then we will see huge downward pressure on the share price of the distressed institution. The creation of a trigger will always allow investors to bet on outcomes when the the institution approaches the trigger. I think what could be interesting is the use of bail-in capital, where creditors are forced to pick up some of the losses of financial institutions. I think it’s unfortunate that tax payers are seen to be the first buffer against losses, even before creditors, just because governments are scared of the market vigilantes.

]]> http://www.criticaltwenties.in/economicsocialpolicy/predicting-the-next-crisis-what-dont-we-know-we-dont-know#comment-2502 Mandar Fri, 04 Feb 2011 06:18:12 +0000 http://www.criticaltwenties.in/?p=2036#comment-2502 A capital structure at banks that comprises of callable bonds. In the zone of distress, the bonds convert into equity cushion. They are experimenting with it in Basel III for SIFIs. A capital structure at banks that comprises of callable bonds. In the zone of distress, the bonds convert into equity cushion. They are experimenting with it in Basel III for SIFIs.

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