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CoCos: A Primer
Journal
BIS Quarterly Review
Type
journal article
Date Issued
2015-09-15
Author(s)
Abstract (De)
Contingent convertible capital instruments (CoCos) are hybrid capital securities that absorb losses when the capital of the issuing bank falls below a certain level. In this article, we go over the structure of CoCos, trace the evolution of their issuance, and examine their pricing in primary and secondary markets. CoCo issuance is primarily driven by their potential to satisfy regulatory capital requirements. The bulk of the demand for CoCos has come from small investors, while institutional investors have been relatively restrained so far. The spreads of CoCos over other subordinated debt greatly depend on their two main design characteristics - the trigger level and the loss absorption mechanism. CoCo spreads are more correlated with the spreads of other subordinated debt than with CDS spreads and equity prices.
Language
English
HSG Classification
contribution to practical use / society
Refereed
Yes
Publisher
Bank For International Settlements
Publisher place
Basel, Switzerland
Start page
43
End page
56
Pages
14
Official URL
Subject(s)
Division(s)
Eprints ID
260552