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Contingent convertible bonds, or Coco bonds, are "designed to bail in the bond holders", said Professor Michael Dempster. They do not come without risks, he added.

Coco bonds are behind the sudden and dramatic falls in bank shares, for instance at Deutsche Bank.

The banking system is "highly interconnected" and if Deutsche Bank were to fail then it would probably lead to a large number of other banks failing, Professor Dempster told World at One's Edward Stourton.

(Image: stock brokers. Credit: AFP)