Market-triggered contingent capital with incomplete information

Tobias Berg; Eva Schliephake

doi:10.1111/jmcb.13190

Market-triggered contingent capital with incomplete information

Tobias Berg, Eva Schliephake^*

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

1 Citation (Scopus)

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Abstract

We analyze the equilibria of market-triggered contingent capital if a bank’s asset value is not common knowledge. Using a global game setup with private signals, we characterize the unique equilibrium for the conversion of the market-triggered contingent capital. The conversion likelihood increases with higher bank leverage, a higher face value of contingent capital, and a greater dilution for incumbent shareholders. We further show that the existence of both a private and a public signal constrains the optimal design of contingent capital for which a unique equilibrium exists.

Original language	English
Number of pages	27
Journal	Journal of Money, Credit and Banking
DOIs	https://doi.org/10.1111/jmcb.13190
Publication status	Accepted/In press - 15 May 2024

Keywords

Banking regulation
Contingent capital
Global games
Risk-taking incentives

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1111/jmcb.13190Licence: CC BY-NC-ND

94938709Final published version, 467 KBLicence: CC BY-NC-ND

http://hdl.handle.net/10400.14/45955Licence: CC BY-NC-ND

Cite this

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Market-triggered contingent capital with incomplete information

Abstract

Keywords

UN SDGs

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CUBE: Católica Lisbon Research Unit in Business and Economics

Cite this

Market-triggered contingent capital with incomplete information

Abstract

Keywords

UN SDGs

Access to Document

Other files and links

Projects

CUBE: Católica Lisbon Research Unit in Business and Economics

Cite this