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

Victor Echevarria-Icaza () and Simon Sosvilla-Rivero
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Victor Echevarria-Icaza: Instituto Complutense de Estudios Internacionales (ICEI). Universidad Complutense de Madrid.

No 1706, Working Papers del Instituto Complutense de Estudios Internacionales from Universidad Complutense de Madrid, Instituto Complutense de Estudios 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)
Pages: 32 pages
Date: 2017
New Economics Papers: this item is included in nep-ban, nep-cba and nep-rmg
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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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