The US Federal Reserve is in talks with banking executives over whether US financial groups should raise capital through a new type of bond that converts into equity when a bank is in trouble. The talks, pioneered by Lloyds Banking Group last week, are at early stages but underline regulators’ push to find new ways to bolster banks’ balance sheets. The new hybrid securities – known as contingent convertibles, or CoCos – operate as bonds in normal times but automatically convert into equity when the bank’s finances deteriorate below a predetermined level. See also FT Alphaville, “I should not have CoCo-ed?”
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