2.4.2 Issuers
In order to meet more stringent capital requirements, financial institutions can either raise more
common equity or issue contingent capital instruments that must convert to common equity upon
the occurrence of a trigger event.
Despite the greater complexity and the higher uncertainty of contingent capital, its potential cost
is lower than that of common equity. This could increase the capacity for loss absorption and attract
more issuers. In addition, the conversion of contingent capital to common equity normally means a
dilution of existing shareholders' value. It will discourage shareholders from taking excessive risks
above its capacity in the fear of conversion. There is also a chance that contingent capital will be
made mandatory by regulators