Contingent capital contributes to minimizing moral hazard by internalizing bank failure costs, that is, by placing those costs on the institution's own security holders rather than on the public.
Source quote, verbatim
By inter- nalizing bank failure costs, contingent capital could contribute to minimizing moral hazard.
From
Wulf A. Kaal, Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance (2012), III.A. Possible Applications, p. 19 https://ssrn.com/abstract=1998455 · source PDF
Cite as
Wulf A. Kaal, Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance (2012). SSRN: https://ssrn.com/abstract=1998455
Holds when
where the conversion feature actually shifts failure costs to CCS holders and shareholders
extended_bykaal:claim:2957645-007 By internalizing the costs of bank failure, contingent capital may be able to minimize moral hazard, avoid fin...
extended_bykaal:claim:2957645-021 Appropriate use of contingent capital triggers can further lower the default risk of the contingent capital se...
restated_bykaal:claim:2061166-021 Contingent capital supports general risk control and reduces moral hazard by holding shareholders responsible ...
restateskaal:claim:1908473-016 By internalizing the costs of bank failure, contingent capital can reduce moral hazard, and because a continge...
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