The US Federal Reserve is in talks with Wall Street executives and others over whether US financial groups should raise capital through a new type of bond that converts into equity when a bank is in trouble.

The talks over the hybrid security, which was pioneered by Lloyds Banking Group of the UK last week, are in their early stages but underline regulators’ desire to find novel ways to bolster banks’ balance sheets in times of crisis. The new securities – known as contingent convertibles, or CoCos – operate as bonds in normal times, paying coupons to investors.