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Market Strategy

Contingent Capital: A Potential Stop-Gap

By Jennifer Kapila and Jorund Aarsnes
Jun 30, 2011 4:00:00 PM | Last Updated

Contingent capital encompasses a broad number of options, but we focus on hybrid securities that boost core capital in periods of distress. Such structures are firmly embedded in the reform dialogue but have not gained widespread acceptance; they have been rejected from qualifying as Core Tier 1 capital. Regulators require new securities to be loss-absorbing and seek to minimize the discretion of the issuer to burden-share with creditors; issuers are, above all, concerned with cost as well as an even playing field; and investors demand adequate reward for the greater (and difficult to quantify) risks of such securities. 

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