Strict regulatory conditions after the recent financial crises have imposed additional costs on banks to allocate capital, but also additional internal controls and monitoring of risk exposure. In addition to changing the way the bank operates, the new conditions are spilling over to its clients and the entire real economy. The aim of this paper is to briefly analyze the capital adequacy of banks in the Republic of Croatia and the rest of the European Union. Along with the analysis of capitalization and the effect of the new regulations on the real sector, the main topic of the paper is the introduction of convertible bonds - CoCos in the capital structure of systemically important banks in Europe. CoCos, as a relatively new financial instrument and unknown to the general public, brings many innovations in the capital structure of banks. Although the goal of their emergence and development is to protect the financial system in times of crisis, many emphasize the exact opposite - their possible impact on increasing systemic risk. Convertible bonds - CoCos are a form of hybrid financial instrument that according to the new Basel III can be regulated into parts of a quality capital structure. They mainly appear as a classic long-term debt instrument, except in the case of stress and crisis of the bank, when they have the option to be written off or converted into ordinary shares, easing the process of collection additional capital by banks in times of crisis. Also, the paper explains the structural characteristics of individual editions of CoCos instruments, different forms of their design and the advantages and disadvantages that they bring to the European banking system.