The Extent to which Contingent Convertible Leasing Protects Bank Deposits:A Barrier Option Approach

Abstract This paper proposes an alternative solution to the problem related to the risk that banks incur in the protection of deposits. This solution lies in the use by banks of contingent convertible leasing contracts to face financial distress situations by solidifying their own funds and thus improving the quality of deposit protection. Convertible contingent leases are instruments that are automatically convertible into shares when the bank reaches a level of financial distress. They allow a limited bailout of the bank in times of generalized crisis when they are not able to issue sufficient levels of new equity.