Systemic banks, capital composition and CoCo bonds issuance:The effects on bank risk

Simon Sosvilla-Rivero and Victor Echevarria-Icaza (victoreicaza@yahoo.com)
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Victor Echevarria-Icaza: Universidad Complutense de Madrid Departamento de Fundamentos del Análisis Económico II (Economía Cuantitativa)

No 17-03, Working Papers from Asociación Española de Economía y Finanzas Internacionales

Abstract: This paper shows that systemic banks are prone to increase their regulatory capital ratio through a decline in risk-weighted assets density and an intense use of lower level capital. The market access of systemic banks, and the fact that they were singled out for higher capital requirements seem to have biased them towards lower level capital, consistent with the theory that asymmetric information drives capital decisions. These effects are particularly strong for institutions that had a rather low level of capitalization at the start of the period and for those that exhibited a strong use of Additional Tier I capital before the regulatory changes. Strict capital composition requirements for firms with lower buffers would be an improvement.

Keywords: Contingent capital; banking regulation; risk-taking incentives; asset substitution; systemic risk (search for similar items in EconPapers)
JEL-codes: G12 G21 G28 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2017-03
New Economics Papers: this item is included in nep-cba and nep-rmg
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Citations: View citations in EconPapers (1)

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http://www.aeefi.com/RePEc/pdf/defi17-03.pdf (application/pdf)

Related works:
Working Paper: Systemic banks, capital composition and CoCo bonds issuance: The effects on bank risk (2017)
Working Paper: Systemic banks, capital composition and CoCo bonds issuance: The effects on bank risk (2017)
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