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Obscure bonds are one reason why bank stocks are in turmoil Add to ...

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A little-known piece of financial machinery designed to reduce risk may be one of the culprits behind recent turbulence in global bank stocks.

Contingent convertible bonds – which go by the charming nickname of “cocos” – are a relatively new type of debt, widely used in Europe, that is designed to provide a buffer for banks during times of stress. Cocos typically provide this relief by automatically being converted into common stock when calamity strikes.

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