The paper investigates the impact of the bail-in regulation on bank bond secondary markets. Using data on outstanding bonds issued by significant Euro-Area banks, the study carries out pooled panel regression analyses to determine the association between yields of “bailinable” and “bailinable” bonds. The paper also analyses the impact of the bail-in tool in relation to bank leverage, which affects the potential severity of losses for bondholders in the case of bail-in. With a sample of 4,855 bonds issued by 45 banks from January 2006 to December 2016, we find an increase in the risk premium for unsecured bonds, and senior unsecured bonds show the greatest effect on yields and yield spread when bail-in regulation came into force. Moreover, a “bail-in severity” premium, related to bank leverage, is identified.

The impact of bail-in risk on bank bondholders / Federica Ielasi, Lorenzo Gai, Martina Mainini. - In: INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT. - ISSN 1833-3850. - STAMPA. - 15:(2020), pp. 105-121. [10.5539/ijbm.v15n9p105]

The impact of bail-in risk on bank bondholders

Federica Ielasi
;
Lorenzo Gai;Martina Mainini
2020

Abstract

The paper investigates the impact of the bail-in regulation on bank bond secondary markets. Using data on outstanding bonds issued by significant Euro-Area banks, the study carries out pooled panel regression analyses to determine the association between yields of “bailinable” and “bailinable” bonds. The paper also analyses the impact of the bail-in tool in relation to bank leverage, which affects the potential severity of losses for bondholders in the case of bail-in. With a sample of 4,855 bonds issued by 45 banks from January 2006 to December 2016, we find an increase in the risk premium for unsecured bonds, and senior unsecured bonds show the greatest effect on yields and yield spread when bail-in regulation came into force. Moreover, a “bail-in severity” premium, related to bank leverage, is identified.
15
105
121
Goal 9: Industry, Innovation, and Infrastructure
Goal 12: Responsible consumption and production
Federica Ielasi, Lorenzo Gai, Martina Mainini
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2158/1206748
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