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Determinants of bail-in debt yields in the EU banking sector: a multi-country approach with idiosyncratic factors

Author

Listed:
  • Manuel Monjas

    (Universidad Autónoma de Madrid)

  • María Rocamora

    (European Banking Authority)

  • Nuria Suárez

    (Universidad Autónoma de Madrid)

Abstract

We examine the effect of bank bail-in debt on investor risk perception after the implementation of the BRRD I in 2016. Using a sample of 62 banks from 14 European countries during 2009Q3–2019Q2, we find that bail-in debt yields increased compared with non bail-in debt instruments after 2016. Moreover, our results indicate that the increased risk sensitiveness for bail-in debt after the implementation of the BRRD I is more relevant in the case of smaller, less-capitalized and more efficient banks. Furthermore, issues of lower relative volume are also perceived as riskier. Results for the banking sector variables reveal that the new regulatory framework contributes more to the increase in yields of bail-in debt in countries with less concentrated and more profitable banking sectors and in less sound and larger banking systems. The results are robust to different model specifications, to potential endogeneity concerns and to different robustness tests.

Suggested Citation

  • Manuel Monjas & María Rocamora & Nuria Suárez, 2023. "Determinants of bail-in debt yields in the EU banking sector: a multi-country approach with idiosyncratic factors," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 50(4), pages 1055-1095, November.
    • Handle: RePEc:kap:empiri:v:50:y:2023:i:4:d:10.1007_s10663-023-09586-9
    DOI: 10.1007/s10663-023-09586-9
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    More about this item

    Keywords

    Bail-in debt; Yields; European BRRD I; Issue and bank features; Banking sector attributes;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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