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Market‐Triggered Contingent Capital with Incomplete Information

Author

Listed:
  • TOBIAS BERG
  • EVA SCHLIEPHAKE

Abstract

We analyze the equilibria of market‐triggered contingent capital if a bank's asset value is not common knowledge. Using a global game setup with private signals, we characterize the unique equilibrium for the conversion of the market‐triggered contingent capital. The conversion likelihood increases with higher bank leverage, a higher face value of contingent capital, and a greater dilution for incumbent shareholders. We further show that the existence of both a private and a public signal constrains the optimal design of contingent capital for which a unique equilibrium exists.

Suggested Citation

  • Tobias Berg & Eva Schliephake, 2026. "Market‐Triggered Contingent Capital with Incomplete Information," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 58(2), pages 563-589, March.
    • Handle: RePEc:wly:jmoncb:v:58:y:2026:i:2:p:563-589
    DOI: 10.1111/jmcb.13190
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    References listed on IDEAS

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