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Contingent capital: the trigger problem

  • Edward Simpson Prescott

Price triggers in contingent capital bonds are analyzed. Pervasiveness of multipleequilibria and nonexistence of equilibrium in theoretical models is illustrated. Evidence of these problems from market experiments is summarized. Possible solutions are evaluated.

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Paper provided by Federal Reserve Bank of Richmond in its series Working Paper with number 11-07.

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Date of creation: 2011
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Handle: RePEc:fip:fedrwp:11-07
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  1. David A. Marshall & Edward Simpson Prescott, 2002. "State-contingent bank regulation with unobserved action and unobserved characteristics," Working Paper Series WP-02-24, Federal Reserve Bank of Chicago.
  2. Douglas Davis & Oleg Korenok & Edward Simpson Prescott, 2014. "An Experimental Analysis of Contingent Capital with Market‐Price Triggers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(5), pages 999-1033, 08.
  3. Philip Bond & Itay Goldstein & Edward Simpson Prescott, 2010. "Market-Based Corrective Actions," Review of Financial Studies, Society for Financial Studies, vol. 23(2), pages 781-820, February.
  4. Edward Simpson Prescott, 2001. "Regulating bank capital structure to control risk," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 35-52.
  5. Flannery, Mark J, 1998. "Using Market Information in Prudential Bank Supervision: A Review of the U.S. Empirical Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 273-305, August.
  6. Edward Simpson Prescott, 2011. "Contingent capital: the trigger problem," Working Paper 11-07, Federal Reserve Bank of Richmond.
  7. Anne Mayhew, 2009. "Institutions," Chapters, in: Handbook of Economics and Ethics, chapter 37 Edward Elgar.
  8. Alon Raviv, 2004. "Bank Stability and Market Discipline: Debt-for-Equity Swap versus Subordinated Notes," Finance 0408003, EconWPA.
  9. Douglas Davis & Edward Simpson Prescott & Oleg Korenok, 2011. "An experimental analysis of contingent capital triggering mechanisms," Working Paper 11-01, Federal Reserve Bank of Richmond.
  10. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
  11. David A. Marshall & Edward Simpson Prescott, 2000. "Bank capital regulation with and without state-contingent penalties," Working Paper Series WP-00-10, Federal Reserve Bank of Chicago.
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