When shareholders exacerbate their own banks' crisis
Friday, November 21, 2014 - 14:50
in Psychology & Sociology
Banks are increasingly issuing 'CoCo' bonds to boost the levels of equity they hold. In a crisis situation, bondholders are forced to convert these bonds into a bank's equity. To date, such bonds have been regarded only as a means of averting a crisis. A study by German economists now shows that if such bonds are badly constructed, they worsen a crisis instead of stabilizing the banking system.