# Failure modes `kaal:entity:failure-modes` **Status.** derived This node is assembled mechanically from the 12 claims that carry the concept tag `failure-modes`. 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 12 claims across 2 works, 2012 to 2023. **2012** - [1998455-012](https://wulfkaal.github.io/claims/1998455-012) [failure/argued] *(failure mode)* -- 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. > 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. Wulf A. Kaal, Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance (2012). SSRN: https://ssrn.com/abstract=1998455 - [1998455-013](https://wulfkaal.github.io/claims/1998455-013) [failure/argued] *(failure mode)* -- Converting contingent capital securities too late makes the capital injection superfluous, because by that stage the institution may face unresolvable difficulties that a capital injection can only marginally soften, and conversion may not suffice once the institution has entered resolution. > On the other hand, converting CCS too late could make the capital injection superfluous. At that stage, the financial institu- tion may have experienced unresolvable financial difficulties that may only marginally be softened with a capital injection. Wulf A. Kaal, Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance (2012). SSRN: https://ssrn.com/abstract=1998455 - [1998455-014](https://wulfkaal.github.io/claims/1998455-014) [failure/argued] *(failure mode)* -- Contingent capital by itself, without additional measures and supplemental corporate governance improvements, may not prevent firm failure; its real potential unfolds only when it supplements other corporate governance improvements. > In sum, contingent capital without additional measures and supplemental corporate governance improvements may not pre- vent firm failure.115 The real potential of contingent capital could unfold if it would be used to supplement other corporate govern- ance improvements. Wulf A. Kaal, Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance (2012). SSRN: https://ssrn.com/abstract=1998455 - [1998455-016](https://wulfkaal.github.io/claims/1998455-016) [failure/speculative] *(failure mode)* -- If a market evolves in which contingent capital designs appear to provide sufficient protection against systemic risk and contagion, decision makers may come to rely on the design of those securities and neglect their own role as monitors. > it seems theoretically possible that decision makers could rely on the design of CCS and neglect their role as monitors. Wulf A. Kaal, Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance (2012). SSRN: https://ssrn.com/abstract=1998455 - [1998455-017](https://wulfkaal.github.io/claims/1998455-017) [failure/argued] *(failure mode)* -- 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. > 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. Wulf A. Kaal, Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance (2012). SSRN: https://ssrn.com/abstract=1998455 - [1998455-018](https://wulfkaal.github.io/claims/1998455-018) [failure/argued] *(failure mode)* -- Regular corporate governance controls may not work in systemically important financial institutions, because those institutions are considered too big to fail and their leaders, anticipating a bailout commitment, are incentivized to shift their risk preferences upwards. > the regular corporate governance controls may not work in SIFIs. SIFIs are often considered too big to fail and may be bailed out. If that is the case, SIFI leaders may anticipate a bail-out com- mitment and may be incentivized to shift their risk preferences upwards. Wulf A. Kaal, Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance (2012). SSRN: https://ssrn.com/abstract=1998455 - [1998455-019](https://wulfkaal.github.io/claims/1998455-019) [failure/argued] *(failure mode)* -- Switching to contingent capital financing could reinforce rather than dampen risk incentives, and these distorted risk incentives are a drawback of contingent capital issuances. > In effect, switching to CCS financing could reinforce risk in- centives and these distorted risk incentives could create draw- backs for CCS issuances. Wulf A. Kaal, Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance (2012). SSRN: https://ssrn.com/abstract=1998455 - [1998455-029](https://wulfkaal.github.io/claims/1998455-029) [failure/argued] *(failure mode)* -- The social welfare maximization potential of contingent capital securities is lower if their design features are left entirely to private ordering, because private parties do not necessarily structure those features with a view toward the common good, the avoidance of future bailouts, or the limitation of systemic risk and contagion. > The social welfare maximization potential of CCS could be lower if the design features are entirely left to private ordering. Wulf A. Kaal, Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance (2012). SSRN: https://ssrn.com/abstract=1998455 - [1998455-036](https://wulfkaal.github.io/claims/1998455-036) [failure/argued] *(failure mode)* -- If central banks were to purchase contingent capital securities issued by systemically important institutions in the primary or secondary market as part of monetary policy, the prospect of internalizing bank failure costs would be undermined, and primary market purchases could also undermine market participants' confidence in these instruments. > If the U.S. Federal Reserve Bank, the European Central Bank, and other central banks, as part of their monetary policy, were to purchase CCS issued by SIFIs in the primary or second- ary market, the prospect of internalizing bank failure costs could be undermined. Wulf A. Kaal, Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance (2012). SSRN: https://ssrn.com/abstract=1998455 - [1998455-037](https://wulfkaal.github.io/claims/1998455-037) [failure/argued] *(failure mode)* -- Combining the existing prioritization of bailouts for systemically important institutions with central bank purchases of their contingent capital in a given jurisdiction would further incentivize those institutions to adopt similar risk profiles and correlate their risks. > Combining bailout prioritization with central bank CCS purchases in a given jurisdiction could further incentivize SIFIs to adopt similar risk profiles and corre- late risks. Wulf A. Kaal, Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance (2012). SSRN: https://ssrn.com/abstract=1998455 - [1998455-039](https://wulfkaal.github.io/claims/1998455-039) [failure/argued] *(failure mode)* -- An outright retroactive charge for government subsidies or for actions taken by regulators could backfire, because it would legitimize the bailout and perpetuate its socially suboptimal consequences. > On the other hand, an outright retroactive charge for government subsi- dies or actions taken by regulators could actually legitimize the bailout and perpetuate its socially suboptimal consequences. Wulf A. Kaal, Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance (2012). SSRN: https://ssrn.com/abstract=1998455 **2023** - [4529715-014](https://wulfkaal.github.io/claims/4529715-014) [failure/asserted] *(failure mode)* -- Some DAO governance platforms create more risk than they mitigate, and DAOs that are not well governed are doomed to fail. > However, some of these platforms can create more risk than they mitigate. DAOs that are not well-governed are doomed to fail. Wulf A. Kaal, Josh Bykowski, Decentralized Autonomous Organizations (DAO) – A Market Meta Analysis (2023). SSRN: https://ssrn.com/abstract=4529715 ## 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/failure-modes.md | sha256sum **Canonical form.** This markdown file is the canonical hashed representation of this entity node. Its sha256 is the content hash.