Converting contingent capital securities prematurely, while the institution can still operate without an equity injection, dissipates the benefit: the injection is no longer available at the later moment when the institution cannot obtain other funding.
Source quote, verbatim
Converting CCS into equity prematurely at a time when the financial institutions can still operate without an equity capi- tal injection could mean that the CCS capital injection would no longer be available when the financial institution will be unable to obtain other funding.
From
Wulf A. Kaal, Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance (2012), III.B. Unresolved Design Issues, p. 23 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 trigger fires before the institution has exhausted other funding sources
restateskaal:claim:1908473-003 If conversion of contingent capital securities is triggered too early, before a real financial need for an equ...
restated_bykaal:claim:2061166-031 A trigger that fires too early wastes the equity injection: conversion occurs without a real need for capital ...
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