How can banks be refinanced after a financial crisis? Professor Christian Wolff of the University of Luxembourg and Theo Vermaelen, an invited professor, have received an award for their model on how to refinance banks after the financial crisis.
Professor Christian Wolff
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During a financial crisis, governments tend to support large banks, but with the Call Option Enhanced Reverse Convertible (COERC) model, which is issued as a bond, shareholders equity would be converted when a bank’s market value falls below a certain threshold, avoiding the “death spirals” which cause large scale panic in the marketplace.
“We view the instrument as an important way to introduce more systemic stability into the banking sector. We are trying to convince regulators that it is worthwhile pursuing,” says Wolff, who is the Director of the University’s Luxembourg School of Finance.
The Global Association of Risk Professionals award was given at the annual conference of the European Financial Management Association, in Barcelona, in recognition for an outstanding paper in the field of financial risk management. Their study, entitled “Contingent Capital: The Case of COERCs”, was conducted in collaboration with George Pennacchi, of the University of Illinois.
During a financial crisis, governments tend to support large banks, but with the Call Option Enhanced Reverse Convertible (COERC) model, which is issued as a bond, shareholders equity would be converted when a bank’s market value falls below a certain threshold, avoiding the “death spirals” which cause large scale panic in the marketplace.
“We view the instrument as an important way to introduce more systemic stability into the banking sector. We are trying to convince regulators that it is worthwhile pursuing,” says Wolff, who is the Director of the University’s Luxembourg School of Finance.
The Global Association of Risk Professionals award was given at the annual conference of the European Financial Management Association, in Barcelona, in recognition for an outstanding paper in the field of financial risk management. Their study, entitled “Contingent Capital: The Case of COERCs”, was conducted in collaboration with George Pennacchi, of the University of Illinois.
Source:
University of Luxembourg
Citation: Pennacchi, George G., Vermaelen, Theo and Wolff, Christian C. P., Contingent Capital: The Case for COERCs (December 23, 2011). INSEAD Working Paper No. 2011/133/FIN. Available at SSRN: http://ssrn.com/abstract=1656994 or
http://dx.doi.org/10.2139/ssrn.1656994Citation: Pennacchi, George G., Vermaelen, Theo and Wolff, Christian C. P., Contingent Capital: The Case for COERCs (December 23, 2011). INSEAD Working Paper No. 2011/133/FIN. Available at SSRN: http://ssrn.com/abstract=1656994 or
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