Lots of talk about co-cos

Should contingent convertibles, or co-cos, be deployed to aid banks capital raising activities? These securities are basically bonds with a conversion feature based on certain triggers. If an issuer's Tier I capital ratio, as an example, were to fall below a certain level, a trigger would force the bonds to be converted into equity.

The appeal in tough times is that a bank would be able to raise capital in rough times, and force these securities investors to swallow losses if things really get tough and the bank has to be bailed out. The issue is who would want to buy such securities if the bank is really in tough shape? The Financial Times notes the Federal Reserve Board seems to think these securities hold real promise. Some think banks could use them to refinance many billions in debt set to expire next year. The Fed is apparently in talks with banks about these securities. 

For more:
- here's the article