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Bond Allocation After Bank Resolution Cases

In: The New Bail-In Legislation

Author

Listed:
  • Angela Maria Maddaloni

    (European Central Bank)

  • Giulia Scardozzi

    (Roma Tre University)

Abstract

Investors may not react to the approval of the regulation (as analyzed by the previous chapter) and may not realize the inherent risk in certain instruments (e.g. bail-inable bonds) until banks are actually experiencing distress. In 2017, several distressed banks that had issued bail-inable debt were actually resolved. Case studies of the major resolution events are discussed in this chapter (e.g. Banco Popular, the Italian “Venetian Banks,” and Monte dei Paschi di Siena). Evidence is provided on the implications of the implementation of the bail-in; results suggest that the banking sector in aggregate increased the nominal amount held of bail-inable bonds issued by riskier banks relative to safer banks (possibly impairing financial stability by increasing the risk of contagion in case of a bank failure), whereas other financial institutions decreased their holdings.

Suggested Citation

  • Angela Maria Maddaloni & Giulia Scardozzi, 2022. "Bond Allocation After Bank Resolution Cases," Palgrave Macmillan Studies in Banking and Financial Institutions, in: The New Bail-In Legislation, chapter 0, pages 49-62, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-3-030-87560-2_4
    DOI: 10.1007/978-3-030-87560-2_4
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