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Call Me Maybe? The Effects of Exercising Contingent Capital

Author

Listed:
  • Boris Vallée

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper empirically investigates the effects of banks triggering contingent capital instruments by studying liability management exercises, which bear comparable regulatory capital effects. These actions create core tier one capital by crystalizing losses on hybrid debt holders. Banks' use of liability management exercises, and the market reaction to them, are consistent with these exercises relaxing a regulatory capital constraint. The created value mainly accrues to debt holders, and does not generate a negative signal. Liability management exercises prove effective at improving bank capitalization levels. These findings strengthen the case for contingent capital instruments as an alternative to raising bank capital requirements.

Suggested Citation

  • Boris Vallée, 2013. "Call Me Maybe? The Effects of Exercising Contingent Capital," Working Papers hal-02058240, HAL.
    • Handle: RePEc:hal:wpaper:hal-02058240
    DOI: 10.2139/ssrn.2346376
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    Cited by:

    1. Michaelides, Alexander, 2014. "What Happened in Cyprus?," CEPR Discussion Papers 9993, C.E.P.R. Discussion Papers.

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