Quantitative easing and its implications for contingent convertible triggers: an analytical perspective

Abstract

Quantitative Easing (QE) has become a critical monetary policy tool, particularly after the 2008 Financial Crisis and the COVID-19 pandemic, aimed at stimulating economic activity through large-scale bond purchases. QE raises asset prices, lowers interest rates, and enhances market liquidity, but its long-term effects on financial stability and instruments like Contingent Convertible (CoCo) bonds are less understood. This study explores how QE indirectly impacts CoCo bond activation by influencing banks’ capital adequacy. Using the 2023 Credit Suisse crisis as a case study, we model how QE reshapes bank capital structures, increasing CoCo activation risks during financial instability.

Keywords

• quantitative easing
• contingent convertible bonds
• financial stability
• credit suisse crisis
• systemic risk
• and macroprudential policy