To Bail-In, or to Bail-Out, that is the Question

Bodellini, Marco

doi:10.1007/s40804-018-0102-x

Cited by 8 publications

(4 citation statements)

References 26 publications

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“…Also, Pandolfi (2018) considers that moral hazard can be completely eradicated by applying a bail-in mechanism. On the other hand, Bodellini (2018) agrees in his work with this view, but suggests that it is not possible for bail-in to completely replace the bail-out mechanism. Sommer (2014) advocates bail-in because his opinion is that 'successful bail-in has only a marginal effect on competition, and that an unsuccessful bail-in only eliminates a competitor, without creating a bigger one'.…”

Section: Literature Reviewmentioning

confidence: 53%

“…This increases the bank's capital, 'which helps short-term refinancing of debts, and prevents the suspension of payments'. 'Private refinancing of short-term debts has several advantages', and they are: they do not have to be non-discriminatory, it is arbitrarily decided which bank will be saved, the problem of moral hazard is solved (Bodellini, 2018) and the problem of conflict of interest between management and government is solved. The only problem that cannot be solved is the squeezing out of private consumption.…”

Section: Bail-in: Example Of Spain and Portugalmentioning

confidence: 99%

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Pigs Economies: Bail-Out vs. Bail-In

Beljić

2021

FU Econ Org

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This paper analyzes bail-out and bail-in programs in the Eurozone periphery economies after the transformation of the global crisis into a debt crisis. Continuous rise of debt service costs was leading PIGS economies (Portugal, Ireland, Greece, Spain) either to abandon of Eurozone or to negotiate rescue programs. Using Panel corrected standard errors (PCSE) method, the research shows that bail-out programs had a negative effect on GDP growth in PIGS economies in the period 2011-2019, as the consequence of crowding-out effects. However, the results showed that bail-out programs could positively affect fiscal variables. An alternative solution is the bail-in mechanism, which is a sustainable mechanism that does not burden taxpayers. Based on examples of banks in Spain and Portugal, results show that using bail-in programs, panic and contagion effects could be avoided; however, in the case of future crisis, the effects of bail-in programs on the real economy still need to be examined.

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Section: Literature Reviewmentioning

confidence: 53%

Section: Bail-in: Example Of Spain and Portugalmentioning

confidence: 99%

Pigs Economies: Bail-Out vs. Bail-In

Beljić

2021

FU Econ Org

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“…Some analyses developed in the design phase of the reform provide simulation-based evidence to support the effectiveness of the bail-in as a major tool to reduce the potential costs for public finance as well as to contain output losses (Breuss et al, 2015;Benczur et al, 2016). Other studies discuss the legal and economic advantages and disadvantages of bail-in regimes (Dewatripont, 2014;Avgouleas and Goodhart, 2015;Bodellini, 2018;Tröger, 2018;Martino, 2020;Maddaloni and Scardozzi, 2022). While the bail-in mechanism has benefits compared to a bailout such as better protection of taxpayers, lower levels of moral hazard, better creditor monitoring, and more transparent and fair allocation of losses, some potential limitations concern the complexity of the regime, the higher funding costs for banks, and the potential for procyclical contagion developments.…”

Section: Related Literaturementioning

confidence: 99%

Bank Bond Holdings and Bail-In Regulatory Changes: Evidence from Euro Area Security Registers

et al. 2022

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“…Data is retrievable at http://ec.europ a.eu/compe titio n/state _aid/score board /index _en.html (accessed on 27 March 2019). 35 See Bodellini (2018). On top of those arguments, Avgouleas and Cullen (2014) introduced into the analysis also behavioral features, arguing that-in line with the behavioral economics stream of literature-shareholder and stakeholders are not able to exactly convey and process the complex amount of information they are provided with.…”

Section: Market Discipline In Banking: a Review Of Theories And Regulmentioning

confidence: 99%

The Bail-in Beyond Unpredictability: Creditors’ Incentives and Market Discipline

Martino

2020

Eur Bus Org Law Rev

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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.

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To Bail-In, or to Bail-Out, that is the Question

Cited by 8 publications

References 26 publications

Pigs Economies: Bail-Out vs. Bail-In

Pigs Economies: Bail-Out vs. Bail-In

Bank Bond Holdings and Bail-In Regulatory Changes: Evidence from Euro Area Security Registers

The Bail-in Beyond Unpredictability: Creditors’ Incentives and Market Discipline

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