# Default risk

`kaal:entity:default-risk`

**Status.** derived

This node is assembled mechanically from the 8 claims that carry the concept tag `default-risk`. It is a roster of what the corpus says under this term. It is **not** an adjudicated definition: no single statement here has been ruled canonical, and no first-appearance call has been made. Read the claims and judge for yourself.

## Every claim under this term

8 claims across 5 works, 2011 to 2021.

**2011**

- [1908473-029](https://wulfkaal.github.io/claims/1908473-029) [mechanism/argued] -- Information asymmetries between market participants and a systemically important institution's management before default can be reduced if a financial weakening after conversion of contingent capital triggers a voting rights increase.
  > The information asymmetries between market participants and a SIFI's management before a SIFI defaults199 could be minimized if a financial weakening of the SIFI after conversion of CCS triggers a voting rights increase.
  Wulf A. Kaal, Christoph Henkel, Contingent Capital with Sequential Triggers (2011). SSRN: https://ssrn.com/abstract=1908473

**2012**

- [2097160-022](https://wulfkaal.github.io/claims/2097160-022) [mechanism/argued] -- Early triggers in executive compensation improve the signaling of default risk by producing the signal while default risk is present but still somewhat remote.
  > Early triggers for contingent convertible bonds in executive compensation packages may increase and optimize the signaling of default risk at a time when the risk of default is present but still somewhat remote.
  Wulf A. Kaal, Contingent Capital in Executive Compensation (2012). SSRN: https://ssrn.com/abstract=2097160
- [2097160-023](https://wulfkaal.github.io/claims/2097160-023) [failure/asserted] *(failure mode)* -- Existing default risk signals were inadequate: CAMEL ratings and credit default swap pricing did not suffice to signal default risk at Lehman Brothers, Bear Stearns, or Merrill Lynch.
  > CAMEL ratings and credit default swap pricing did not suffice to signal default risk in the cases of Lehman Brothers, Bear Stearns, and Merrill Lynch.
  Wulf A. Kaal, Contingent Capital in Executive Compensation (2012). SSRN: https://ssrn.com/abstract=2097160
- [2097160-040](https://wulfkaal.github.io/claims/2097160-040) [design/argued] -- An early trigger design for contingent convertible bonds in executive compensation enables earlier signaling of default risk, increases incentives for creditors and shareholders to monitor, and increases executives' incentives to lower risk-taking.
  > Contingent convertible bonds with an early trigger design enable earlier signaling of default risk; they provide increased incentives for monitoring by creditors and shareholders as well as incentives for executives to lower their risk-taking.282
  Wulf A. Kaal, Contingent Capital in Executive Compensation (2012). SSRN: https://ssrn.com/abstract=2097160

**2017**

- [2957645-021](https://wulfkaal.github.io/claims/2957645-021) [condition/argued] -- Appropriate use of contingent capital triggers can further lower the default risk of the contingent capital securities themselves, on top of the moral hazard reduction that comes from internalizing bank failure costs.
  > contingent capital can minimize moral hazard,43 and appropriate use of contingent capital triggers can further lower default risk of CCS.44
  Kaal, Dynamic Regulation via Contingent Capital (2017). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2957645

**2019**

- [3396542-012](https://wulfkaal.github.io/claims/3396542-012) [mechanism/argued] -- A breach by the underwriters of a policy does not amount to a default by the DAO, and under normal market conditions a well designed DAO should experience very few breaches if any.
  > Note that a breach by underwriters on a policy does not imply a default by the DAO. Under normal market conditions, a well-designed DAO should experience very few breaches, if any
  Craig Calcaterra, Wulf A. Kaal, Vadhindran K. Rao, Decentralized Underwriting (2019). SSRN: https://ssrn.com/abstract=3396542
- [3396542-030](https://wulfkaal.github.io/claims/3396542-030) [mechanism/argued] -- Barring highly adverse market conditions, the DAO's ability to mint and sell tokens on demand functions as capital on tap and protects the DAO from default and bankruptcy.
  > Barring highly adverse market conditions, the availability of "capital on tap" protects the DAO from default and bankruptcy.
  Craig Calcaterra, Wulf A. Kaal, Vadhindran K. Rao, Decentralized Underwriting (2019). SSRN: https://ssrn.com/abstract=3396542

**2021**

- [3782216-012](https://wulfkaal.github.io/claims/3782216-012) [empirical/evidenced] *(failure mode)* -- Member default on premia is a major inefficiency in chit funds, with estimates that a large share of subscribers have defaulted at least once recently and a substantial share have defaulted after winning an auction.
  > It's been estimated that Td% of chit fund sub- scribers have defaulted at least once recently and 9e% have defaulted after winning an auction.
  Craig Calcaterra, Wulf A. Kaal, Decentralized Finance (DeFi) (2021). SSRN: https://ssrn.com/abstract=3782216

## Verify

Every claim above resolves to a record carrying a verbatim source quote, the sha256 of the source PDF, and a preformatted citation. Nothing here asks to be taken on trust.

    curl -s https://wulfkaal.github.io/entities/default-risk.md | sha256sum

**Canonical form.** This markdown file is the canonical hashed representation of this entity node. Its sha256 is the content hash.