Over time, the application of partial equity conversions to other time obligations as they fall due and the conversion of creditor obligations into equity could take place.
While avoiding the complexity, costs and moral hazard of deposit insurance, ex ante the prospect of bank creditor recapitalisations may provide creditors with an incentive to monitor their bank and insist on levels of capital closer to the socially optimal level. A credible creditor recapitalisation option may avoid the need for and inefficiency induced by a deposit insurance regime.