Contingent Capital Trigger Effects: Evidence from Liability Management Exercises
35 Pages Posted: 29 Oct 2013 Last revised: 18 Jul 2019
Date Written: June 4, 2019
Abstract
This paper studies liability management exercises (LME) by banks, which have comparable regulatory capital effects than contingent capital triggers. LMEs are concentrated on low capitalization situations, both in the cross-section and in the time series and are frequently associated with equity issuances. These exercises prove effective at improving bank capitalization levels. The market reaction to LMEs is positive and mostly accrues to debt holders. These findings strengthen the case for innovative liabilities securities as a tool to improve bank resilience.
Keywords: Contingent Capital, Financial Distress, Debt Overhang, Financial Institutions
JEL Classification: G21, G28, G01, G14
Suggested Citation: Suggested Citation
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