Too-international-to-fail? Supranational bank resolution and market discipline

Górnicka, Lucyna; Zoican, Marius

doi:10.1016/j.jbankfin.2016.01.005

Cited by 16 publications

(8 citation statements)

References 26 publications

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“…The literature demonstrates that the bail‐in regulation has the greatest impact on larger banks, which have previously been regarded as “too big to fail” and, consequently, exposed to higher public guarantee expectations, in connection with moral hazard (Allen, Carletti, Goldstein, & Leonello, 2015; Giuliana, 2019; Gornicka & Zoican, 2016; Pablos, 2019; Pigrum et al, 2016; Zhao, 2018). Moreover, the effects depend on the probability of default of the bank involved (Andersson, Busetto, & Klaus, 2019; Crespi et al, 2019).…”

Section: Literature Review and Hypothesesmentioning

confidence: 99%

Do bond yields follow the hierarchy of risk post BRRD?

Cucinelli

Gai

Ielasi

2020

Euro Fin Management

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With a sample of 4,065 bonds issued by 63 banks from 12 euro area countries during 2013-2017, this study investigates how introducing bail-in regulation has influenced bond yields in secondary markets, by distinguishing between non-bail-inable and different classes of bail-inable bonds. The bail-in risk premium does not follow the hierarchy of risk; it is stronger for less risky bonds. The effect on the spread between senior unsecured and non-bail-inable bonds is much higher than for subordinated bonds. Regarding subordinated bonds, the impact is higher for securities excluded from regulatory capital than for those included.

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Section: Literature Review and Hypothesesmentioning

confidence: 99%

Do bond yields follow the hierarchy of risk post BRRD?

Cucinelli

Gai

Ielasi

2020

Euro Fin Management

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“…However, there is vast empirical evidence on how deposit insurance can indeed lead to more moral hazard and risk-taking (Pennacchi, 2006;Wheelock and Kumbhakar, 1995), a decline in market discipline (Demirgüç-Kunt and Huizinga, 2004;Jaremski, 2019, 2016;Wheelock and Kumbhakar, 1995), and ultimately to greater instability in financial markets (Demirgüç-Kunt and Detrawide regulatory agency and coordination issues between supranational and national regulators have been discussed. Inter alia, the focus has been on banking supervision (Colliard, 2018;Carletti et al, 2016;Beck and Wagner, 2016;Boyer and Ponce, 2012), bank resolution (Górnicka and Zoican, 2016), as well as on bank bailouts and recapitalization (Foarta, 2018). Whereas evidence on the efficiency of supranational regulation is mixed, the findings indicate that some degree of shared responsibilities via a supranational regulatory regime is welfare-beneficial.…”

Section: Literaturementioning

confidence: 99%

The Macroeconomic Effects of a European Deposit (Re-) Insurance Scheme

2020

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While the first two pillars of the European Banking Union have been implemented, a European deposit insurance scheme (EDIS) is still not in place. To facilitate its introduction, recent proposals argue in favor of a reinsurance scheme. In this paper, we use a regime-switching open-economy DSGE model with bank default and bank-government linkages to assess the relative efficiency of such a scheme. We find that reinsurance by both a national fiscal backstop and EDIS is efficient in stabilizing the macro economy, even though welfare gains are slightly larger with EDIS and debt-to-GDP ratios rise under the fiscal reinsurance. We demonstrate that risk-weighted contributions to EDIS are welfare-beneficial for depositors and discuss trade-offs policy makers face during the implementation of EDIS. In a counterfactual exercise, we find that EDIS would have stabilized economic activity in Germany and the rest of the euro area just as well as a fiscal backing of insured deposits during the financial crisis. However, the debt-to-GDP ratio would have been lower with EDIS.

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“…During the financial and sovereign debt crises, numerous banks experienced economic and liquidity distress and were subsequently bailed out by governments. However, bail-out is generally assumed to have negative externalities and adverse consequences for the economy, mainly in the light of the moral hazard hypothesis (see, among others, Dam & Koetter, 2012;Dewatripont, 2014;Allen et al, 2015;Gornicka & Zoican, 2016;Chari & Kehoe, 2016).…”

Section: Introductionmentioning

confidence: 99%

The Impact of Bail-in Risk on Bank Bondholders

Gai¹,

Ielasi²,

Mainini³

2020

IJBM

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The paper investigates the impact of the bail-in regulation on bank bond secondary markets. Using data on outstanding bonds issued by significant Euro-Area banks, the study carries out pooled panel regression analyses to determine the association between yields of “bailinable” and “bailinable” bonds. The paper also analyses the impact of the bail-in tool in relation to bank leverage, which affects the potential severity of losses for bondholders in the case of bail-in. With a sample of 4,855 bonds issued by 45 banks from January 2006 to December 2016, we find an increase in the risk premium for unsecured bonds, and senior unsecured bonds show the greatest effect on yields and yield spread when bail-in regulation came into force. Moreover, a “bail-in severity” premium, related to bank leverage, is identified.

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Too-international-to-fail? Supranational bank resolution and market discipline

Cited by 16 publications

References 26 publications

Do bond yields follow the hierarchy of risk post BRRD?

Do bond yields follow the hierarchy of risk post BRRD?

The Macroeconomic Effects of a European Deposit (Re-) Insurance Scheme

The Impact of Bail-in Risk on Bank Bondholders

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