I use the term “McDonald CoCo” to describe a hybrid security that is initially debt-like coverts into equity when the issuer’s common equity price declines below a preset floor. The conversion is performed at the …
Category: Contingent Capital
Hedging a McDonald CoCo
In the first update to the post A Structural Model of Contingent Bank Capital, when responding to Prof. Pennacchi’s commentary (then anonymous, then later quoted in full with permission), I said: As an unconstrained bond …
Market-Based Bank Capital Regulation
Assiduous Reader DR sent me the following query: Today’s Financial Posts has an article “A better Basel mousetrap to protect taxpayers”, by Finn Poschmann regarding NVCC. What is your opinion? A short search brought up …
BCBS Discusses Contingent Capital
The Basel Committee on Banking Supervision has released the Global systemically important banks: assessment methodology and the additional loss absorbency requirement, which contains a series of points regarding Contingent Capital. The idea of using the …
Nagel, Tory's Opine on Preferred Shares, Contingent Capital
Financial Webring Forum brings to my attention a Globe & Mail article titled What happens to rate reset prefs in Basel III?: John Nagel at Desjardins Securities has been watching the issue closely, trying to …
Contingent Capital Update
A Reuters columnist suggested Big banks winners from new contingent capital move: Plans to make hybrid bond investors share the pain when banks run into trouble could polarise the financial sector into big firms that …
A Structural Model of Contingent Bank Capital
George Pennacchi, a Professor of Finance at the University of Illinois, has published a paper titled A Structural Model of Contingent Bank Capital that leads to some surprising – to me – conclusions: This paper …
Contingent Capital with a Dual Price Trigger
Robert McDonald of Northwestern University has published a paper titled Contingent Capital with a Dual Price Trigger that I consider excellent – mainly because it advocates a framework for Contingent Capital that includes the structure …