Conclusions and Recommendations for Cocos Design and Evaluations

George von Furstenberg

Chapter 18 in Contingent Convertibles [CoCos]:A Potent Instrument for Financial Reform, 2014, pp 241-251 from World Scientific Publishing Co. Pte. Ltd.

Abstract: On New Year's Day, 2014, the New York Times carried a story that wondered why “Ski Helmet Use Isn’t Reducing Brain Injuries.” Such helmets have been getting ever better in shock absorbtion, but the rate of serious head injury has reportedly not declined; only lesser injuries like scalp lacerations, have been reduced. We may similarly ask ourselves why it is that capital has become ever more loss absorbing, yet the rate of financial crises has not declined. Perhaps it will turn out that excessive risk taking is hard to restrain when managers have no intention to help in doing so and are inclined to rate regulations by their nuisance value rather than by any stabilization benefits. Greater capital buffers might just stimulate higher risk taking, and the eventual damage could be just as great as before…

Keywords: Contingent Convertibles; CoCos; Financial Reform; Financial Crisis; Risk Management; Bank Capital; Financial Services; Fixed-Income Securities; Basel III (search for similar items in EconPapers)
Date: 2014
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