NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Anastasia Kartasheva

Bank for International Settlements
Centralbahnplatz 2
4002 Basel
Switzerland

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NBER Working Papers and Publications

November 2017CoCo Issuance and Bank Fragility
with Stefan Avdjiev, Bilyana Bogdanova, Patrick Bolton, Wei Jiang: w23999
The promise of contingent convertible capital securities (CoCos) as a “bail-in” solution has been the subject of considerable theoretical analysis and debate, but little is known about their effects in practice. In this paper, we undertake the first comprehensive empirical analysis of bank CoCo issues, a market segment that comprises over 730 instruments totaling $521 billion. Four main findings emerge: 1) The propensity to issue a CoCo is higher for larger and better-capitalized banks; 2) CoCo issues result in statistically significant declines in issuers’ CDS spreads, indicating that they generate risk-reduction benefits and lower costs of debt. This is especially true for CoCos that: i) convert into equity, ii) have mechanical triggers, iii) are classified as Additional Tier 1 instrume...
 
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