If you had asked bankers and policy makers a year ago what "contingent capital" was, most would have responded with a blank stare. Then capital-raising options began drying up as the financial crisis deepened and now, suddenly, the stewards of the banking system are touting this once-fringe idea as a key to avoiding more government rescues.

What is contingent capital? In short, it's a debt instrument that a bank could quickly convert into equity in a time of crisis, theoretically reducing the need for a bailout. Treasury Secretary Tim Geithner, Fed Chairman Ben Bernanke, and William Dudley, the president of the Federal Reserve Bank of New York, have all voiced strong support for the idea, with Dudley making it the centerpiece of a speech at a conference of international bankers.

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