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

Christine Maati-Sauvez ()
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Christine Maati-Sauvez: IDP - Institut du Développement et de la Prospective - EA 1384 - UVHC - Université de Valenciennes et du Hainaut-Cambrésis - IAE - Institut d'Administration des Entreprises - UPHF - Université Polytechnique Hauts-de-France

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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.

Keywords: Banking governance; Endogenous capital stucture; Contingent convertibles; Asset substitution; Financial crisis (search for similar items in EconPapers)
Date: 2013
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Published in Revue Sciences de Gestion, 2013, 99, pp.105-124

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02926868

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