Countercyclical contingent capital

Emilio Barucci, Luca Del Viva

Producció científica: Article en revista indexadaArticleAvaluat per experts

13 Cites (Scopus)


We analyze the optimal capital structure of a bank issuing countercyclical contingent capital, i.e., notes to be converted into common shares in poor macroeconomic conditions. A comparison of the main effects produced by the countercyclical asset with the simple equity-debt capital structure, the non-countercyclical contingent capital and the countercyclical callable bond is conducted. We demonstrate that this type of asset reduces the spread of straight debt and is effective in reducing the asset substitution incentive. The reduction of bankruptcy costs is strong only when the countercyclicality feature is removed. Contingent capital is useful for macroprudential regulation and we show that the countercyclical feature is important depending on priorities (moderate the asset substitution incentive or reduce bankruptcy costs).

Idioma originalAnglès
Pàgines (de-a)1688-1709
Nombre de pàgines22
RevistaJournal of Banking and Finance
Estat de la publicacióPublicada - de juny 2012
Publicat externament


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