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Contingent capital

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  • Yaron Leitner

Abstract

Government bailouts during the recent financial crisis were controversial because of the burden on taxpayers and because even if taxpayers eventually get their money back, such bailouts can undermine banks? incentives not to take excessive risk in the future. New regulatory reforms aim to avoid such crises in the future. One proposal is to require banks to hold ?contingent capital.? In this article, Yaron Leitner explains what contingent capital is and discusses some of the arguments in favor of it. He also discusses potential implementation problems and looks at some of the alternatives.

Suggested Citation

  • Yaron Leitner, 2012. "Contingent capital," Business Review, Federal Reserve Bank of Philadelphia, issue Q2, pages 11-18.
    • Handle: RePEc:fip:fedpbr:y:2012:i:q2:p:11-18
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    File URL: https://www.philadelphiafed.org/-/media/frbp/assets/economy/articles/business-review/2012/q2/brq212_contingent-capital.pdf
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    References listed on IDEAS

    as
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    3. Viral V. Acharya & Douglas Gale & Tanju Yorulmazer, 2011. "Rollover Risk and Market Freezes," Journal of Finance, American Finance Association, vol. 66(4), pages 1177-1209, August.
    4. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    5. Konstantin Milbradt, 2012. "Level 3 Assets: Booking Profits and Concealing Losses," The Review of Financial Studies, Society for Financial Studies, vol. 25(1), pages 55-95.
    6. Yaron Leitner, 2005. "Financial Networks: Contagion, Commitment, and Private Sector Bailouts," Journal of Finance, American Finance Association, vol. 60(6), pages 2925-2953, December.
    7. Philip Bond & Yaron Leitner, 2012. "Market run-ups, market freezes, inventories, and leverage," Working Papers 12-8, Federal Reserve Bank of Philadelphia.
    8. Oliver Hart & Luigi Zingales, 2011. "A New Capital Regulation for Large Financial Institutions," American Law and Economics Review, American Law and Economics Association, vol. 13(2), pages 453-490.
    Full references (including those not matched with items on IDEAS)

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