Abstract

http://ssrn.com/abstract=1908473
 


 



Contingent Capital with Sequential Triggers


Wulf A. Kaal


University of St. Thomas, Minnesota - School of Law; European Corporate Governance Institute (ECGI)

Christoph Henkel


Mississippi College - School of Law

2011

49 San Diego Law Review, p. 49, p. 221, 2012
U of St. Thomas Legal Studies Research Paper No. 11-20
Mississippi College School of Law Research Paper No. 2012-01

Abstract:     
Policy makers may not have fully utilized the potential of contingent capital. This article proposes the use of contingent capital with sequential triggers as an early preventative tool and as a reorganization tool before liquidation, independent of protection under bankruptcy proceedings. The first preventative trigger would convert a fixed amount of debt to equity at a stage when the institution is still sound on a micro prudential basis, but shows early signs of substantial weakening. The second reorganization trigger would increase voting rights for holders of contingent capital after conversion to equity at the reorganization stage. Sequential triggers could incentivize corrective actions by bank management. The second trigger introduces a quasi preparation stage for bankruptcy, independent of management decisions or corrective action by regulators. The proposal would work seamlessly with the regulatory framework proposed by the EU Commission and could provide U.S. policy makers with a new perspective on the multiple uses of contingent capital in the context of bank restructuring.

Number of Pages in PDF File: 59

Keywords: Dodd-Frank, contingent capital, financial crisis, securities, bankruptcy, bank restructuring

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Date posted: August 12, 2011 ; Last revised: October 15, 2012

Suggested Citation

Kaal , Wulf A. and Henkel, Christoph, Contingent Capital with Sequential Triggers (2011). 49 San Diego Law Review, p. 49, p. 221, 2012; U of St. Thomas Legal Studies Research Paper No. 11-20; Mississippi College School of Law Research Paper No. 2012-01. Available at SSRN: http://ssrn.com/abstract=1908473 or http://dx.doi.org/10.2139/ssrn.1908473

Contact Information

Wulf A. Kaal (Contact Author)
University of St. Thomas, Minnesota - School of Law ( email )
MSL 400, 1000 La Salle Avenue
Minneapolis, MN Minnesota 55403-2005
United States

European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Christoph Henkel
Mississippi College - School of Law ( email )
151 East Griffith Street
Jackson, MS 39201
United States
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