Bank failures around the world during the recent financial crisis put taxpayers on the hook for trillions of dollars in government backstopping. In future, requiring banks to issue contingent capital, which would convert from debt to equity when banks run into trouble, is one way to help avoid that happening again, and limit taxpayer costs if it does, according to an e-brief released today by the C.D. Howe Institute. In “Strengthening Bank Regulation: OSFI’s Contingent Capital Plan,” John F. Chant, Emeritus Professor of Economics, Simon Fraser University, makes the case for contingent capital, critiques the current federal proposal, and makes recommendations for design that would help stave off disaster for banks, not hasten their demise.
