{
 "failure_mode": "moral-hazard-and-bailout-expectation",
 "specific_names": [
  "Bail-out expectation removes the loss threat and skews risk incentives",
  "Bailout expectation suppresses creditor monitoring",
  "Prescriptive regime destabilization",
  "Regulatory crowding out of private monitoring",
  "anticipated-bailout-risk-shift",
  "bailout-cost-externalization",
  "governance-controls-ineffective-in-sifis",
  "guarantee-induced-leverage",
  "monitoring-neglect-through-reliance-on-design",
  "moral-reasoning-crowd-out",
  "retroactive-charge-legitimizes-bailout",
  "risk-incentive-reinforcement"
 ],
 "count": 13,
 "claims": [
  {
   "id": "kaal:claim:1908473-014",
   "url": "https://wulfkaal.github.io/claims/1908473-014",
   "claim": "The incentive effects of corporate governance controls may not operate in systemically important financial institutions, because managers and owners who anticipate a bailout commitment adjust their risk preferences upward.",
   "specific_name": "anticipated-bailout-risk-shift",
   "conditions": [
    "Applies to institutions considered too big to fail"
   ],
   "source": "Contingent Capital with Sequential Triggers",
   "year": "2011",
   "quote": "the incentives originating from corporate governance controls may not work in SIFIs. SIFIs are often considered too big to fail and may be bailed out.108 If that is the case, SIFI principals-managers-owners may anticipate a bailout commitment and adjust their risk preferences upwards.",
   "citation": "Wulf A. Kaal, Christoph Henkel, Contingent Capital with Sequential Triggers (2011). SSRN: https://ssrn.com/abstract=1908473"
  },
  {
   "id": "kaal:claim:1908473-015",
   "url": "https://wulfkaal.github.io/claims/1908473-015",
   "claim": "Switching to contingent capital financing may reinforce rather than reduce risk incentives, and whether the risk incentives generated by contingent capital outweigh its risk reduction potential remains unresolved.",
   "specific_name": "risk-incentive-reinforcement",
   "conditions": [
    "Turns on the design features of the securities and on how much control equity holders retain after conversion"
   ],
   "source": "Contingent Capital with Sequential Triggers",
   "year": "2011",
   "quote": "In effect, however, switching to CCS financing could reinforce risk incentives. Additional research may be needed to determine if risk incentives generated by CCS113 may outweigh their potential for risk reduction.",
   "citation": "Wulf A. Kaal, Christoph Henkel, Contingent Capital with Sequential Triggers (2011). SSRN: https://ssrn.com/abstract=1908473"
  },
  {
   "id": "kaal:claim:2061166-010",
   "url": "https://wulfkaal.github.io/claims/2061166-010",
   "claim": "Reliance on public bail-outs, unaccompanied by any threat that management, shareholders and creditors would share significant losses, created an asymmetric incentive for excessive risk taking by financial institutions.",
   "specific_name": "Bail-out expectation removes the loss threat and skews risk incentives",
   "conditions": [
    "Germany and the United States during the height of the financial crisis",
    "where insolvency was not a credible threat"
   ],
   "source": "Contingent Capital in European Union Bank Restructuring",
   "year": "2012",
   "quote": "The reliance on a public bail-out without the threat of any significant losses shared by management, shareholders and creditors may have created an asymmetric incentive for excessive risk taking by financial institutions.",
   "citation": "Christoph K. Henkel, Wulf A. Kaal, Contingent Capital in European Union Bank Restructuring (2012). SSRN: https://ssrn.com/abstract=2061166"
  },
  {
   "id": "kaal:claim:2097160-020",
   "url": "https://wulfkaal.github.io/claims/2097160-020",
   "claim": "Ordinary SIFI creditors have suboptimal incentives to monitor management because they implicitly expect that the government will provide bailout funding given the nature of the entity.",
   "specific_name": "Bailout expectation suppresses creditor monitoring",
   "conditions": [
    "systemically important financial institutions carrying implicit government guarantees"
   ],
   "source": "Contingent Capital in Executive Compensation",
   "year": "2012",
   "quote": "Because of an implicit expectation that the government will provide bailout funding due to the nature of the entity, ordinary SIFI creditors may have suboptimal incentives to monitor the performance of management.177",
   "citation": "Wulf A. Kaal, Contingent Capital in Executive Compensation (2012). SSRN: https://ssrn.com/abstract=2097160"
  },
  {
   "id": "kaal:claim:1998455-001",
   "url": "https://wulfkaal.github.io/claims/1998455-001",
   "claim": "Government bailouts of systemically important financial institutions create strong incentives for those institutions to externalize the cost of their risk taking onto taxpayers.",
   "specific_name": "bailout-cost-externalization",
   "conditions": [
    "where governments provide bailout funding to systemically important financial institutions"
   ],
   "source": "Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance",
   "year": "2012",
   "quote": "Government bailouts create strong incentives to externalize the cost of SIFIs' risk taking onto taxpayers.",
   "citation": "Wulf A. Kaal, Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance (2012). SSRN: https://ssrn.com/abstract=1998455"
  },
  {
   "id": "kaal:claim:1998455-002",
   "url": "https://wulfkaal.github.io/claims/1998455-002",
   "claim": "The implicit guarantees contained in a bailout multiply the incentives for systemically important financial institutions to increase leverage, because those guarantees make debt cheaper than equity.",
   "specific_name": "guarantee-induced-leverage",
   "conditions": [
    "where market participants expect governments to bail out systemically important firms"
   ],
   "source": "Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance",
   "year": "2012",
   "quote": "The implicit guarantees in a bailout may also multiply the incentives for SIFIs to increase leverage because the guarantees could make debt cheaper than equity.",
   "citation": "Wulf A. Kaal, Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance (2012). SSRN: https://ssrn.com/abstract=1998455"
  },
  {
   "id": "kaal:claim:1998455-016",
   "url": "https://wulfkaal.github.io/claims/1998455-016",
   "claim": "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.",
   "specific_name": "monitoring-neglect-through-reliance-on-design",
   "conditions": [
    "theoretical possibility flagged by the author",
    "presupposes CCS designs that appear protective"
   ],
   "source": "Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance",
   "year": "2012",
   "quote": "it seems theoretically possible that decision makers could rely on the design of CCS and neglect their role as monitors.",
   "citation": "Wulf A. Kaal, Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance (2012). SSRN: https://ssrn.com/abstract=1998455"
  },
  {
   "id": "kaal:claim:1998455-017",
   "url": "https://wulfkaal.github.io/claims/1998455-017",
   "claim": "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.",
   "specific_name": "moral-reasoning-crowd-out",
   "conditions": [
    "where decision makers operate under an illusion of heightened protection",
    "where the underlying contingent capital design is flawed"
   ],
   "source": "Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance",
   "year": "2012",
   "quote": "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.",
   "citation": "Wulf A. Kaal, Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance (2012). SSRN: https://ssrn.com/abstract=1998455"
  },
  {
   "id": "kaal:claim:1998455-018",
   "url": "https://wulfkaal.github.io/claims/1998455-018",
   "claim": "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.",
   "specific_name": "governance-controls-ineffective-in-sifis",
   "conditions": [
    "where the institution is treated as too big to fail and a bailout is anticipated"
   ],
   "source": "Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance",
   "year": "2012",
   "quote": "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.",
   "citation": "Wulf A. Kaal, Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance (2012). SSRN: https://ssrn.com/abstract=1998455"
  },
  {
   "id": "kaal:claim:1998455-019",
   "url": "https://wulfkaal.github.io/claims/1998455-019",
   "claim": "Switching to contingent capital financing could reinforce rather than dampen risk incentives, and these distorted risk incentives are a drawback of contingent capital issuances.",
   "specific_name": "risk-incentive-reinforcement",
   "conditions": [
    "where the issuing institution is already treated as too big to fail",
    "the author notes these drawbacks are unlikely to materialize in the near term given the nascent market"
   ],
   "source": "Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance",
   "year": "2012",
   "quote": "In effect, switching to CCS financing could reinforce risk in- centives and these distorted risk incentives could create draw- backs for CCS issuances.",
   "citation": "Wulf A. Kaal, Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance (2012). SSRN: https://ssrn.com/abstract=1998455"
  },
  {
   "id": "kaal:claim:1998455-039",
   "url": "https://wulfkaal.github.io/claims/1998455-039",
   "claim": "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.",
   "specific_name": "retroactive-charge-legitimizes-bailout",
   "conditions": [
    "where the counter-subsidy takes the form of a retroactive charge on bailout recipients"
   ],
   "source": "Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance",
   "year": "2012",
   "quote": "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.",
   "citation": "Wulf A. Kaal, Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance (2012). SSRN: https://ssrn.com/abstract=1998455"
  },
  {
   "id": "kaal:claim:2714974-028",
   "url": "https://wulfkaal.github.io/claims/2714974-028",
   "claim": "Direct regulation of hedge fund leverage increases moral hazard costs, because lenders and counterparties relax their own vigilance once they rely on government rules to constrain fund risk taking.",
   "specific_name": "Regulatory crowding out of private monitoring",
   "conditions": [
    "applies where government rules substitute for private monitoring"
   ],
   "source": "The History of Hedge Fund Regulation in the United States",
   "year": "2016",
   "quote": "Direct regulation could also increase moral hazard costs as lenders and counterparties may relax their vigilance in reliance on the government rules.",
   "citation": "Kaal and Oesterle, The History of Hedge Fund Regulation in the United States (2016). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2714974"
  },
  {
   "id": "kaal:claim:2714974-029",
   "url": "https://wulfkaal.github.io/claims/2714974-029",
   "claim": "Any prescriptive regulatory regime for hedge funds risks leaving the financial system less stable rather than more stable, because counterparties relax vigilance when they believe authorities are monitoring and constraining fund risk taking.",
   "specific_name": "Prescriptive regime destabilization",
   "conditions": [
    "applies to prescriptive position reporting and monitoring regimes"
   ],
   "source": "The History of Hedge Fund Regulation in the United States",
   "year": "2016",
   "quote": "A risk of any prescriptive regulatory regime is that, by creating moral hazard in the marketplace, it leaves the system less rather than more stable.",
   "citation": "Kaal and Oesterle, The History of Hedge Fund Regulation in the United States (2016). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2714974"
  }
 ]
}