{"title":"Market‐Triggered Contingent Capital with Incomplete Information","authors":"TOBIAS BERG, EVA SCHLIEPHAKE","doi":"10.1111/jmcb.13190","DOIUrl":null,"url":null,"abstract":"We analyze the equilibria of market‐triggered contingent capital if a bank's asset value is <jats:italic>not</jats:italic> 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.","PeriodicalId":48328,"journal":{"name":"Journal of Money Credit and Banking","volume":null,"pages":null},"PeriodicalIF":1.2000,"publicationDate":"2024-07-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Money Credit and Banking","FirstCategoryId":"96","ListUrlMain":"https://doi.org/10.1111/jmcb.13190","RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q3","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
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.