The idea is that while CoCos count as Tier 1 capital, under stress national regulators can convert the debt into equity to recapitalise a listing institution. Something governments did directly in the crisis.
So while CoCos are neither truly debt nor equity, their prices do respond to fears banks might need new capital. And indeed this is what is happening.
According to Dr Philip Bayley, principal of ADCM Services, in his debt capital markets review, “one of the problems that investors are now facing up to in this period of increased risk aversion is that the CoCos are too complex".
“CoCos come with all the downside risks of equity and none of the upside, and in Basel III form, have yet to be tested in a crisis."
And he adds: “They may actually work as intended."
That said: “European investors are increasingly pricing in the risk of coupon payments being suspended and notes not being called when expected. No-one is yet pricing in the risk of mandatory conversion in to ordinary equity or the more likely scenario in Europe, of a complete write-off of the obligation."
Yet even that view is further complicated by a growing sense the old backstops, governments and central banks, not only won't be there to bail out banks but are failing to bail out economies.
Central bank “jaw-boning", now are central plank of policy, seems to be becoming more and more plaintive.
So bank revenue is flat, the chance of bad debts, the cost of funding and risk premia are all increasing.
What can banks do? They can cut costs and clearly we are seeing considerable effort in this regard.
But there are two cost lines banks will find difficult to ignore: the cost of new regulation and the cost of new technology.
Both potentially will help better run banks differentiate themselves from the pack.
While all banks are subject to the same regulatory forces, some are more efficient at complying than others and, even more significantly, evidence is emerging that some banks are actually gaining a competitive advantage around how they structure their compliance, particularly in using the data they are required to capture.
That leads onto the next cost line: technology. Banks may well not face an existential threat from the new disruptors in financial services but equally they can't ignore new, more efficient ways of providing banking services.
High profile technologies like “blockchains" may well revolutionise the clearing and settling and capital requirements of markets but they also require considerable investment. Big data promises rich new understanding of customers and market opportunities but it requires big dollars too.
There's much talk of banks evolving, of adapting as the environment changes, and this is certainly true. But students of evolution will remember it can be punctuated, with periods of gradual change and periods of quite rapid upheaval.
With global uncertainty, funding constraints, technological change and revenue challenges, it seems banks are in for a period of upheaval. And stock markets always discount upheaval.
Andrew Cornell is managing editor at BlueNotes