This proposal will potentially require banks to issue long-term debt instruments that would automatically covert to equity under specific triggers. This contingent arrangement will accordingly enable banks coming under stress to quickly buffer  4  BIS Review 152/2009  their capital without imposing any cost on tax payers. All this will not, of course, be costless.
The challenge is to design the contingent capital provisions in a way that optimally manages the trade off between higher cost and lower moral hazard. 23. An important proposal aimed at mitigating systemic risk is to impose a systemic risk capital surcharge on institutions that pose a higher risk to the system because of their size, complexity or interconnectedness.