Bail in or Bail out? The Atlante example from a systemic risk perspective

Giudici and Parisi (2016) have proposed a novel econometric approach that measures systemic risk as a probabilistic "add-on" to the idiosyncratic probability of default of an economic sector (sovereign, corporate or bank). In this contribution we extend their approach to financial institutions and, doing so, we investigate the relative advantage, in terms of systemic risk, of a bail-in versus a bail-out scenario. We apply our methods to the Italian bail-out private intervention scheme named Atlante. The results show that the bail-out of a troubled bank and, specifically of the Banca Popolare di Vicenza, is more convenient for the smaller, safer and highly correlated banks.