Bail-In or Bailout? Regulatory Power in CoCo Bond Yields

We examine whether market prices of contingent convertible (CoCo) bonds embed a jurisdiction-level component that reflects differences in perceived regulatory resolve to impose bail-in losses, beyond issuer risk and instrument design. Using a global panel of listed CoCos with daily yields and detailed contractual characteristics, we construct maturity-matched CoCo spreads and recover a jurisdiction-time pricing wedge from panel regressions that control for global time effects, bank fundamentals, and security features. We summarize this wedge in a market-implied Regulatory Power Index (RPI). The RPI shows economically meaningful cross-jurisdiction variation: jurisdictions where bail-in credibility is perceived to be stronger are priced with higher CoCo risk premia, while jurisdictions associated with greater expectations of forbearance or public support are priced with lower premia. Event-time difference-in-differences analyses around salient resolution and policy episodes---most notably the March 2023 Swiss AT1 write-down and a December 2024 Norwegian capital relief episode---reveal sharp, directionally consistent repricing of the jurisdictional premium. Overall, the RPI provides a high-frequency measure of how perceived regulatory power and resolution credibility are reflected in bank contingent-capital funding costs.