from Greenberg Center for Geoeconomic Studies

An Expedited Resolution Mechanism for Distressed Financial Firms

Regulatory Hybrid Securities

April 01, 2009

Report

More on:

Economic Crises

Financial Markets

Overview

This Working Paper, the third in the Squam Lake Working Group series distributed by the Center for Geoeconomic Studies, recommends support for a new regulatory hybrid security that will expedite the recapitalization of distressed financial companies. The new instrument resembles long-term debt in normal times, but converts to equity when the financial system and the issuing bank are both under financial stress. The regulatory hybrid security the authors envision would be transparent, less costly to taxpayers, and more effective than the ad hoc measures taken in the current crisis.