Contingent capital rules could contribute to overriding the moral reasoning of decision makers, in which case contingent capital would actually increase, not reduce, risk incentives for institutions that are too big to fail.
Source quote, verbatim
This could mean that contingent capital rules could actually contribute to overriding decision maker's moral reasoning. In that case, contingent capital could actually increase risk incentives for SI- FIs that are too big to fail.
From
Wulf A. Kaal, Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance (2012), IV.A. Adverse Effects, p. 33 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 decision makers operate under an illusion of heightened protection
where the underlying contingent capital design is flawed
extendskaal:claim:1908473-015 Switching to contingent capital financing may reinforce rather than reduce risk incentives, and whether the ri...
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