CoCo design as a risk preventive tool

Enrico Perotti, Mark Flannery, 9 February 2011

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The financial crisis saw local credit losses spread widely because bank capital was insufficient to cope with the accumulated credit risk, maturity mismatch, and contingent liquidity risk. Ultimately, short-term liability holders lost faith in some large banks’ ability to repay them. The resulting runs forced supervisors to step in with government support.

Topics: Financial markets
Tags: capital buffer, Contingent convertible bonds, financial crises, risk

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