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Are Post-Crisis Bank Regulations Effective? Evidence from Contingent Convertible (CoCo) Bonds

Title: Are Post-Crisis Bank Regulations Effective? Evidence from Contingent Convertible (CoCo) Bonds

 

Speaker: Chenyu Shan(Shanghai University of Finance and Economics, Assistant Professor)

 

Host: Tong Zhou(Sun Yat-sen UniversityLingnan College, Assistant Professor)

 

Date and Time:14:30-16:00June 1, 2018

 

Location: Wang Daohan Room, Lingnan Hall

 

Language: English

 

Abstract: Contingent convertible bonds (CoCos) are the latest capital instruments advocated by regulators including the Basel Committee on Banking Supervision. CoCos are designed to reduce banks’ dependence on external support—especially government bailouts—and have been extensively issued by banks worldwide since the 2008 financial crisis. Analyzing a comprehensive dataset, we find that banks distributing more dividends out of earnings issue more CoCos. This result is more pronounced when bank shareholders have a stronger preference for dividends. CoCo issuance is not related to regulatory capital ratios for banks that have low dividend payout ratios. Moreover, banks increase dividend payout after CoCo issuance. Our findings are in sharp contrast with existing theories and policy debates on CoCo issuance, which ignore dividend payouts. The results of this study suggest that bank shareholder interest, rather than improving bank resilience or curbing negative spillovers as intended, is the primary consideration for CoCo issuance.

 

Speaker’s personal website:

http://newfin.shufe.edu.cn:888/Home/Jxky_Jzyg_Xkxq/?Id=shanchenyu

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