Do contingent convertible bonds reduce systemic risk?

Layla dos Santos Mendes, Rodrigo Leite and José Fajardo

Journal of International Financial Markets, Institutions and Money, 2022, vol. 78, issue C

Abstract: In this paper, we implement an empirical analysis to discuss the impact of CoCo bond issuance on the systemic risk using three systemic risk measures for banks: SRISK, SES and ΔCoVaR. Our results show that issuing CoCo bonds the first time decreases systemic risk as a positive response to a future crisis. However, the second issuance increases the systemic risk, possibly by demonstrating a higher risk of financial distress or capital needs. Moreover, we provide evidence that smaller banks, banks with larger loans ratios to their total assets, and banks with unstable sources of funding are more benefited by CoCo issuance. We also perform robustness checks for all the findings and discuss policy implications.

Keywords: Systemic risk; CoCo bonds; Crisis (search for similar items in EconPapers)
JEL-codes: G01 G21 G23 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:78:y:2022:i:c:s1042443122000439

DOI: 10.1016/j.intfin.2022.101554

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