Quantitative easing and its implications for contingent convertible triggers: an analytical perspective

Miruna-Mihaela Vasilca, Răzvan Cotescu, Alexandra Cheptiș and Alin Ioan Vid
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Miruna-Mihaela Vasilca: Bucharest University of Economic Studies, Romania
Răzvan Cotescu: Bucharest University of Economic Studies, Romania
Alexandra Cheptiș: Bucharest University of Economic Studies, Romania
Alin Ioan Vid: Bucharest University of Economic Studies, Romania

Theoretical and Applied Economics, 2024, vol. XXXI, issue 4(641), Winter, 357-373

Abstract: Quantitative Easing (QE) has become a critical monetary policy tool, particularly after the 2008 Financial Crisis and the COVID-19 pandemic, aimed at stimulating economic activity through large-scale bond purchases. QE raises asset prices, lowers interest rates, and enhances market liquidity, but its long-term effects on financial stability and instruments like Contingent Convertible (CoCo) bonds are less understood. This study explores how QE indirectly impacts CoCo bond activation by influencing banks' capital adequacy. Using the 2023 Credit Suisse crisis as a case study, we model how QE reshapes bank capital structures, increasing CoCo activation risks during financial instability.

Keywords: Quantitative Easing; contingent convertible bonds; financial stability; Credit Suisse crisis; systemic risk; and macroprudential policy. (search for similar items in EconPapers)
Date: 2024
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