# Contingent Convertible Bonds in Financial Networks

arXiv: https://arxiv.org/abs/2009.00062 · HTML: https://mlsanity.com/paper/2009.00062/

## Key facts

- Cited by 1 papers in the map (data through 14 Oct 2026).
- First posted on arXiv 31 Aug 2020.

## Built on by (most cited first, 1 of 1)

- [Reinforcement Learning Policy Recommendation for Interbank Network Stability](https://mlsanity.com/paper/2204.07134/) (2022)

## Abstract (arXiv)

We study the role of contingent convertible bonds (CoCos) in a complex network of interconnected banks. By studying the system's phase transitions, we reveal that the structure of the interbank network is of fundamental importance for the effectiveness of CoCos as a financial stability enhancing mechanism. Our results show that, under some network structures, the presence of CoCos can increase (and not reduce) financial fragility, because of the occurring of unneeded triggers and consequential suboptimal conversions that damage CoCos investors. We also demonstrate that, in the presence of a moderate financial shock, lightly interconnected financial networks are more robust than highly interconnected networks. This makes them a potentially optimal choice for both CoCos issuers and buyers.