Market-based trigger measures are vulnerable to market manipulation and bank runs, while accounting-based measures are updated too infrequently to respond adequately in a financial crisis.
Source quote, verbatim
However, market-based measures may be susceptible to market manipulation and banking runs.156 Accounting-based measures in institution- specific automatic triggers are arguably too infrequently updated to respond adequately in a financial crisis.
Wulf A. Kaal, Contingent Capital in Executive Compensation (2012). SSRN: https://ssrn.com/abstract=2097160
Holds when
institution-specific automatic triggers keyed to market or accounting metrics
Classification
failuresupport: arguedfailure: Trigger metric manipulation and stalenessfamily: trigger-design-failurecontingent-capitaleconomicssystemic-risk
Related claims
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contestskaal:claim:1908473-008 The first trigger should be based on a threshold in market value rather than accounting measures, because a ma...
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