The Impact of Bail-in Risk on Bank Bondholders

Gai, Lorenzo; Ielasi, Federica; Mainini, Martina

doi:10.5539/ijbm.v15n9p105

Cited by 4 publications

(4 citation statements)

References 34 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Some studies corroborate the abovementioned results as regards senior unsecured debt, Lewrick et al (2019) find indeed evidence of enhanced market discipline among senior unsecured bondholders, whereas Cucinelli et al (2020) support findings about their higher bail-in expectations. Finally, Gai et al (2020) find an increase in the risk-premium for unsecured bonds, pointing out senior unsecured bonds as those showing the greatest effect on yields and yield spread.…”

Section: Literature Reviewmentioning

confidence: 83%

“…(2020) support findings about their higher bail-in expectations. Finally, Gai et al. (2020) find an increase in the risk-premium for unsecured bonds, pointing out senior unsecured bonds as those showing the greatest effect on yields and yield spread.…”

Section: Literature Reviewmentioning

confidence: 83%

“…Being fundamental for its implementation, bail-in credibility has piqued the interest of numerous scholars that have addressed the question mostly focusing on the shortcomings of its implementation in the European bank resolution framework (Giuliana, 2019;Crespi et al, 2019;Pablos, 2019;Cucinelli et al, 2020;Gai et al, 2020).…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Bail-in credibility: evidence from emerging markets

Velliscig

Piserà²,

Polato³

et al. 2022

IJOEM

View full text Add to dashboard Cite

PurposeSome controversial cases of bail-in in the emerging countries have raised the question about whether for those countries to have in place a regulation for the bail-in is appropriate or not. To assess appropriateness, this paper investigates bail-in credibility among investors, as crucial condition for the credibility’s smooth implementation, by measuring the yield spread between bailinable and non-bailinable bonds.Design/methodology/approachThe authors compare the yield spread of banks located in emerging countries that have in place a framework for the bail-in to the comparable yield spread measured for banks located in emerging countries without such framework. The comparison permits to detect whether there is a significant difference between the two spreads, which would suggest that bail-in regulation has been deemed credible by market participants where enforced, or not, which in this case would signal a problem of credibility.FindingsThe authors' results point out a significantly higher yield spread for banks located in emerging countries that have adopted a framework for the bail-in of creditors. Bail-in regulation has, therefore, being deemed credible in the adopting emerging countries, thus ensuring a crucial condition for bail-in regulation's smooth application. The authors also point out bank size and country's gross domestic product (GDP) growth as crucial moderators of bail-in expectations of market participants that can guide the implementation of bail-in rules in emerging countries.Originality/valueThis paper contributes to the literature on the credibility of bail-in with a new perspective from the emerging countries.

show abstract

Section: Literature Reviewmentioning

confidence: 83%

Section: Literature Reviewmentioning

confidence: 83%

See 1 more Smart Citation

Bail-in credibility: evidence from emerging markets

Velliscig

Piserà²,

Polato³

et al. 2022

IJOEM

View full text Add to dashboard Cite

show abstract

“…But other researches, like Berg and Christoph 、 Mahmoud and Ayowande, Chan and Wijnbergen analyze that CoCos can improve the incentive effect of bank original shareholder's risk taking by converting into equity [7][8][9]. Gai et al show that bail-in tools such as CoCos can increase in the risk premium for unsecured bonds [10]. To solve this problem, some scholars propose to think more about the contract design of contingent capital.…”

Section: Introductionmentioning

confidence: 99%

The Design of Stratified Contingent Bank Liability Structure to Release Risk Incentive Effects

Wang¹,

Qin²

2021

JFA

View full text Add to dashboard Cite

This paper proposes a new type of bank liability structure with stratified contingent capital based on the suggestions of Basel III and TLAC Term Sheet. It try to solve the problem that the total loss absorbing capacity of global systemically important banks is insufficient and the single contingent capital-CoCos will bring extra risk to the bank in recent years. Compared with single contingent capital, the bail-in mechanism of stratified contingent capital is more complex and its risk effects will be more uncertain. Therefore, this paper studies how to design the parameters setting of stratified contingent liability structure to release the incentive effect of original shareholders' risk taking. Firstly, it analyzed the basic setting of bank capital structure and bail-in mechanism. And then, it calculated the value of CoCos, TLAC bonds, and original shareholders' equity by replicating payoffs using sets of exotic options. Finally, it calculated the elasticity of the original shareholders' equity value to the volatility of asset value. The elasticity is used to analyze the incentive effect of original shareholders' risk taking. The numerical analysis shows that risk incentive effect is more sensitive to the parameters setting of CoCos. In any case, conversion rate has a more important impact than the trigger threshold. In particular, the effect of risk taking can be eliminated by setting the parameters properly.

show abstract