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Macroprudential policy analysis and tools – Assessing the impact of bank capitalisation changes conditional on a bail-in versus bail-out regime

Author

Listed:
  • Gross, M.
  • Población, J.

Abstract

We have developed a flow-based contingent claims model for valuing bank debt and equity, along with the value of banks for the government. The model is intended to be useful for quantifying the impact of capital-based macroprudential policy measures on the various claims of banks, and their estimated probability of default and funding cost. We focus on the differential effect that capital ratio changes exert conditional on moving between bail-out and bail-in regimes, which amounts to varying the recovery rate of debt holders in the model. JEL Classification: G00

Suggested Citation

  • Gross, M. & Población, J., 2017. "Macroprudential policy analysis and tools – Assessing the impact of bank capitalisation changes conditional on a bail-in versus bail-out regime," Macroprudential Bulletin, European Central Bank, vol. 4.
    • Handle: RePEc:ecb:ecbmbu:2017:0004:2
    as

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    References listed on IDEAS

    as
    1. Goldstein, Robert & Ju, Nengjiu & Leland, Hayne, 2001. "An EBIT-Based Model of Dynamic Capital Structure," The Journal of Business, University of Chicago Press, vol. 74(4), pages 483-512, October.
    2. Black, Fischer & Cox, John C, 1976. "Valuing Corporate Securities: Some Effects of Bond Indenture Provisions," Journal of Finance, American Finance Association, vol. 31(2), pages 351-367, May.
    3. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    4. Dirk Schoenmaker, 2017. "A macro approach to international bank resolution," Policy Contributions 21231, Bruegel.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    capitalisation; financial stability; macroprudential policy; debt;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General

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