Something to put on your radar screens for the new year: contingent capital, or CoCo bonds. These instruments are contingent convertible and will be a very respected form of TIER 1 capital under the foggy regulations of Basel 3. The regulators like these instruments as they are DEBT that converts to equity if/when the bank-in-question’s equity/capital ratio falls below a certain level. Rather than the BOND holders getting a free ride and the equity owners bearing the burden with an equity raise, the CoCos will automatically convert to EQUITY, which will lower the level of DEBT and increase equity capital to a regulatory acceptable level. Credit Suisse announced it’s going to do a $30 billion CoCo so you can be certain that other large multinational banks will be joining in. It has yet to be determined what effect CoCos will have on the markets overall. If its popularity catches on, as I suspect, it could provide a boost to the global behemoths as it would lower the need to float more stock to reach the needed capital levels.