The market discipline of creditors on the risk-taking behaviour of borrowing banks represents a long-lasting debate. Such a debate gained new attention after the postcrisis stream of reforms concerning resolution policy: creditors should be incentivized to make an optimal effort in monitoring their borrowers and, at the same time, their interests have been aligned with the social ones. Many commentators criticized such an expectation especially in the European context, arguing that the lack of credibility and excessive complexity of the resolution mechanism impair the ability and willingness of creditors to exert a disciplining role. This article aims at taking a step forward in this scientific debate, investigating whether the ability to exert disciplining activity is inherently impaired by the design of the Directive. In other words, this research wants to assess if, assuming an ideal environment, creditors would have optimal incentives to monitor banks' behaviour and to react accordingly. To do so, the article reviews the literature on market discipline, then carries out a legal analysis of the Bank Recovery and Resolution Directive (BRRD), focusing on those norms shaping the market for bail-inable securities. Eventually, the incentives stemming from those norms are discussed, assuming an ideal environment where a bailin is certain and credible and the market for bail-inable securities works smoothly. The analysis highlights that the incentives of creditors toward market discipline are inherently diluted by the BRRD's legal design because of competing policy objectives pursued by the Directive. The direct normative consequence of such a finding is that enhancing information and predictability, though desirable in principle, will never lead to an optimal monitoring effort, leaving the floor to alternative rule-based strategies.

This paper proposes a radical change in the current remuneration practices, including bail-inable debt within the variable component of remuneration packages. In supporting such claim, the paper sets the economic rationale for remuneration and explains the quintessential role of debt in banking. Against such theoretical framework, the incumbent EU regulation reveals to be severely flawed. Consequently, the paper shows why including bail-inable debt in remuneration packages provides incentives towards optimal risk-taking and develops a detailed policy proposal that focuses both on the content of the regulation and on the possible implementation strategies. Bank Governance, Remuneration, Capital Requirement Directive, Bank Resolution, Bail-inable debt, Stability, Resolvability, Managerial Incentives; Excessive Risktaking; Material Risk-Takers

for their comments on earlier versions of the manuscript. An earlier version of the paper was presented at the "Erasmus Early-Career Scholars Conference" in Rotterdam; "Building the Banking Union: the challenges ahead" in Lisbon; the "EDLE Workshop" in Bologna and the "14 th Annual Conference of the Italian Society of Law and Economics". Helpful comments of participants are gratefully acknowledged. Finally, my gratitude goes to the anonymous referee for his comments and appreciation. All remaining errors are mine.

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