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Autor
Zombirt Joanna (Jagiellonian University in Krakow, Poland)
Tytuł
Contingent Convertible Bonds as an Alternative to Strengthen Banks' Ability in Financing a Real Economy
Źródło
Entrepreneurial Business and Economics Review, 2015, vol. 3, nr 1, s. 135-149, rys., bibliogr. 17 poz.
Tytuł własny numeru
Social Entrepreneurship and Socio-Economic Development
Słowa kluczowe
Regulacje bankowe, System finansowania, Stabilność finansowa, Zarządzanie bankiem, Obligacje zamienne
Bank regulations, System of financing, Financial sustainability, Bank management, Convertible bonds
Uwagi
summ.
Abstrakt
Objective: The main goal of this paper is to analyse whether Contingent Convertible Bonds (CoCos) are equally safe for banks and for the real economy because of their, sometimes, uneasy to understand features. It is still too early to estimate precisely an impact of CoCos for credit institutions because European Union is in the process of moving towards new regulatory framework with an aim to strengthen banks' resistance against future shocks. CoCos have not passed any serious test in this context but, from the point of banks' view they seem to be very promising. How will they behave during periods of market stresses it than has to be demonstrated.

Research Design & Methods: Main methods are studies of the available literature, especially recommended by Calomiris & Herring (2013) and Borio (2013). A particular attention has been paid to various models of CoCos.

Findings: My findings confirm that there are still unidentified threats connected with CoCos that could jeopardize future proper functioning of a financial system and then - a real economy. Still, if not materialized, these threats will by easily outweighed by advantages for resistant balance sheets of banks.

Implications & Recommendations: CoCos can serve as a valuable instrument to upgrade a capital base of banks. However, it is important to make some efforts to design certain standardized features to enable comparison and valuation, to avoid unintended negative consequences for banks and economy, as a whole. Negative consequences for banks could result from overreliance on this source of capital and for economy - in a form of rescue packages from taxpayers money.

Contribution & Value Added: My studies are an attempt of a comparison of pros and cons of CoCos. Moreover, it is an attempt to present CoCos in a broader context of banking regulations. (original abstract)
Dostępne w
Biblioteka Główna Uniwersytetu Ekonomicznego w Krakowie
Biblioteka Szkoły Głównej Handlowej w Warszawie
Biblioteka Główna Uniwersytetu Ekonomicznego w Katowicach
Biblioteka Główna Uniwersytetu Ekonomicznego we Wrocławiu
Pełny tekst
Pokaż
Bibliografia
Pokaż
  1. Albul, B., Jaffee D., & Tchistyi, A. (2012). Contingent convertible bonds and capital structure decisions, University of California, Working Paper.
  2. Borio, C. (2013). International banking and financial market developments. BIS Quarterly Review, September, CoCos: a primer.
  3. Calomiris, Ch.W., & Herring, R.J. (2013). How to design a Contingent Convertible Debt Requirement that Helps Solve Our Too-Big to Fail Problem. Journal of Applied Corporate Finance, 25(2), 39-62.
  4. Duffie, D. (2009). Contractual Methods for Out-of-Court Restructuring of Systemically Important Financial Institutions. Submission Requested by the U.S. Treasury Working Group on Bank Capital, Draft of December 9, 2009.
  5. ESMA (2014). [online] CS 60747 Statement: Potential Risks Associated with Investing in Contingent Convertible Instruments. Retrieved on November 18, 2014 from: http://www.esma.europa.eu/system/files/2014-944_statement_on_potential_risks_associated_with_investing_in_contingent_convertible_instruments.pdf
  6. Flannery, M.J. (2005). No Pain, No Gain: Effecting Market Discipline via Reverse Convertible Debentures. In H.S. Scott (Ed.), Capital Adequacy beyond Basel: Banking, Securities, and Insurance (pp. 171-196), Oxford: Oxford University Press.
  7. Freixas, X. (2013). [online] Ex post resolution and ex ante incentives. Retrieved on November 18, 2014 from: https://www.ecb.europa.eu/events/pdf/conferences/130626/Session2_Freixas.pdf?b1b9a44a5457f56d52653ee5f2cb353a
  8. Gersbach, H. (2010). Can Contingent Contracts Insure Against Banking Crises? The Swiss Federal Institute of Technology, Working Paper.
  9. Greeley, B. (2014). [online] Barclays Wells Contingent Capital. What's Contingent Capital?, Bloomberg BusinessWeek, April 5, 2013. Retrieved on November 18, 2014 from: http://www.businesweek.com/articles/2013-04-05/barclays-sells-contingent-capital-dot-what-s-contingent-capital?
  10. Kashyap, A., Raghuram, R., & Stein, J. (2008). Rethinking Capital Regulation. Federal Reserve Bank of Kansas City. Symposium on Maintaining Stability in a Changing Financial System, 21-23 August 2008.
  11. Leland, H.E. (1994). Corporate debt value, bond covenants, and optimal capital structure. Journal of Finance, 49(4), 1213-1252.
  12. Martynova, N., & Perotti, E. (2013). [online] Convertible Bonds and Bank Risk-taking. Retrieved on November 18, 2014 from: https://www.ecb.europa.eu/events/pdf/conferences/130626/Session2-Martynova.pdf ?312e04bc244e49fb2e8e80083ec9e242
  13. Miles, D., Marcheggiano G., & Yang J. (2011). Optimal Bank Capital. External MPC Unit, Bank of England, Discussion Paper, No. 31.
  14. Patil, D. (2015). [online] Basel Bonds Set to Spike as Bad Debt Spoils Indian Equity. Bloomberg BusinessWeek, January 1. Retrieved on November 18, 2014 from: http://www.businessweek.com/news/2015-01-01/basel-bonds-set-to-spike-as-bad-debt-spoils-indian-equity
  15. Pinedo, A.T., & Ireland, O.I. (2014). [online] Banking in the 21st Century: Navigating Uncharted Waters. New York Law Journal, Frequently asked questions about contingent capital. Retrieved on November 18, 2014 from: http://media.mofo.com/files/Uploads/Images?FAQs-Contingent-Capital.pdf.2014
  16. Raviv, A. (2004). Bank Stability and Market Discipline: Debt-for-Equity Swap versus Subordinated Notes. The Hebrew University Business School, Working Paper.
  17. Segoviano, M.A., & Goodhart, Ch. (2009). Bank Stability Measures, IMF, WP/09/4.
Cytowane przez
Pokaż
ISSN
2353-883X
Język
eng
URI / DOI
http://dx.doi.org/10.15678/EBER.2015.030110
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