Abstract
This paper studies market reaction and economic performance following the rst episode of banks triggering contingent capital options. During the nancial crisis, European banks massively used embedded options in their hybrid bonds to reduce their debt burden. These triggers are positively received by debtors, while stockholders discriminate according to the type of resulting debt relief and the nancial institution leverage. Moreover, banks that trigger permanent debt reliefs exhibit higher economic performance than the ones that do not. These ndings point towards innovative debt instruments oering an eective solution to the dilemma of bank capital regulation.
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