| Status | 已發表Published |
| CoCo Bonds as an Impediment of More Risk-Taking and an Alternative to Bankruptcy in Mortgage Markets | |
Lai, R.N.  ; Van Order, R.
| |
| 2012 | |
| Source Publication | American Real Estate and Urban Economics Association 2012
 |
| Abstract | The Financial Crisis of 2007-2009 woke all economies up to the problem of capital adequacy. The recent introduction of a new instrument, Contingent Convertible Bonds, or CoCo bonds, which automatically turn debt into equity, should the capital ratio fall to a mandatory conversion level, promises to be a solution to costly bankruptcy, credit crunches and “Too Big to Fail” (TBTF) problems. That is not the only problem they might solve. There are banks that are not quite insolvent; only their capital ratios have dropped, putting them in positions where they have to cut back lending. Besides, healthy banks are affected by bankruptcy of some banks in that their collateral values will also be perceived as less valuable. In addition, since CoCo bonds significantly reduce the possibility of bailouts, bondholders will then have more obligations to monitor risk-taking, while shareholders will try to take less risk. Reflectively, similar logic applies also to malfunctioning mortgage markets and mortgage market institutions, in which case, CoCo Bonds can also be used to strengthen their capital. This paper analyzes a scheme that offers CoCo bonds in tranches, with the lowest tranche converted first at a high trigger when the bank is still solvent and healthy, but can fulfill the issues mentioned above. More conversions at further lower triggers can be possible, until the last tranche converts when the bank is near bankruptcy. |
| Keyword | Contingent Convertible Bonds insolvency mortgage markets |
| Language | 英語English |
| The Source to Article | PB_Publication |
| PUB ID | 8759 |
| Document Type | Conference paper |
| Collection | HONOURS COLLEGE |
| Corresponding Author | Lai, R.N. |
| Recommended Citation GB/T 7714 | Lai, R.N.,Van Order, R.. CoCo Bonds as an Impediment of More Risk-Taking and an Alternative to Bankruptcy in Mortgage Markets[C], 2012. |
| APA | Lai, R.N.., & Van Order, R. (2012). CoCo Bonds as an Impediment of More Risk-Taking and an Alternative to Bankruptcy in Mortgage Markets. American Real Estate and Urban Economics Association 2012. |
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