The effects of bail-ins on bail-out expectations in the European Banking sector
Autor(a) principal: | |
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Data de Publicação: | 2017 |
Tipo de documento: | Dissertação |
Idioma: | eng |
Título da fonte: | Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
Texto Completo: | http://hdl.handle.net/10400.14/22575 |
Resumo: | In the aftermath of the Great Recession, sovereign guarantees and the associated bail-out ex-pectations caused a distortion in the cost of funding and risk-taking behaviour of financial in-stitutions. The Bank Recovery and Resolution Directive (BRRD) aims to achieve financial sta-bility through transparency and incentivizing market discipline. The central tool of the BRRD, the bail in, is a burden-sharing mechanism reallocating the cost of the gone concern of financial institutions. Forcing shareholders and creditors to participate in potential losses must increase monitoring, thus reducing the moral hazard of large financial institutions. If the directive is credible, these changes in bail-out expectations must be reflected in the security prices of all affected banks. As changes in regulation are introduced over several years, effects on market prices are difficult to observe. I show that the recurring resolution events between 2011 and 2016 across several Eurozone countries affected bail-out expectations, reaching a critical level in 2013. The write down of junior debt in Cyprus caused highly significant reactions on bank charter values and CDS spreads. From 2014 to 2016, effects were inconsistent and lacked di-rection. This decrease in market reactions points to the achievement of bail-in expectations through commitment and consistent implementation. Bail-in expectations imply the anticipa-tion of a bail-in in case of bank financial distress, which requires strict and diligent monitoring. |
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The effects of bail-ins on bail-out expectations in the European Banking sectorBail-insRegulationEUBank resolution and recovery directiveResolutionBRRDEvent studyBail-inResoluçãoBanco de recuperação e diretiva de resoluçãoExpectativas de bail-outDomínio/Área Científica::Ciências Sociais::Economia e GestãoIn the aftermath of the Great Recession, sovereign guarantees and the associated bail-out ex-pectations caused a distortion in the cost of funding and risk-taking behaviour of financial in-stitutions. The Bank Recovery and Resolution Directive (BRRD) aims to achieve financial sta-bility through transparency and incentivizing market discipline. The central tool of the BRRD, the bail in, is a burden-sharing mechanism reallocating the cost of the gone concern of financial institutions. Forcing shareholders and creditors to participate in potential losses must increase monitoring, thus reducing the moral hazard of large financial institutions. If the directive is credible, these changes in bail-out expectations must be reflected in the security prices of all affected banks. As changes in regulation are introduced over several years, effects on market prices are difficult to observe. I show that the recurring resolution events between 2011 and 2016 across several Eurozone countries affected bail-out expectations, reaching a critical level in 2013. The write down of junior debt in Cyprus caused highly significant reactions on bank charter values and CDS spreads. From 2014 to 2016, effects were inconsistent and lacked di-rection. This decrease in market reactions points to the achievement of bail-in expectations through commitment and consistent implementation. Bail-in expectations imply the anticipa-tion of a bail-in in case of bank financial distress, which requires strict and diligent monitoring.Na sequência da Grande Recessão, as garantias soberanas e as expectativas de bail out associ-adas causaram uma distorção no custo do financiamento e no comportamento de risco das ins-tituições financeiras. O Banco de Recuperação e Diretiva de Resolução (BRRD) visa alcançar a estabilidade financeira através da transparência e do incentivo à disciplina de mercado. A ferramenta central da BRRD, a fiança, é um mecanismo de repartição de encargos que reafecta o custo. Forçar os acionistas e credores a participar em perdas potenciais deve aumentar o mo-nitoramento moral hazard. Se a diretiva for credível, essas mudanças nas expectativas de resgate devem refletir-se nos preços de segurança. Como as mudanças na regulamentação são introdu-zidas ao longo de vários anos, os efeitos nos preços de mercado são difíceis de observar. Eu venho mostrar que os eventos de resolução recorrente entre 2011 e 2016 em vários países da zona do euro afetaram as expectativas de bail-out, atingindo um nível crítico em 2013. A redu-ção da dívida júnior em Chipre causou reações altamente significativas sobre os valores da carta patente do banco e os spams do CDS. De 2014 a 2016, os efeitos foram inconsistentes e care-ciam de direção. Esta diminuição nas reações do mercado aponta para a realização das expec-tativas de fiança através de compromisso e implementação consistente. As expectativas de fi-ança implicam a antecipação bail-in em caso de instabilidade financeira bancária, o que exige um monitoramento rigoroso e diligente.Bonfim, Diana Carina Ribeiro GuimarãesVeritati - Repositório Institucional da Universidade Católica PortuguesaEdelmann, Bernd Michael Kay2017-07-26T11:59:32Z2017-07-1820172017-07-18T00:00:00Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/masterThesisapplication/pdfhttp://hdl.handle.net/10400.14/22575TID:201725282enginfo:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2023-07-12T17:28:51Zoai:repositorio.ucp.pt:10400.14/22575Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-19T18:18:46.294370Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse |
dc.title.none.fl_str_mv |
The effects of bail-ins on bail-out expectations in the European Banking sector |
title |
The effects of bail-ins on bail-out expectations in the European Banking sector |
spellingShingle |
The effects of bail-ins on bail-out expectations in the European Banking sector Edelmann, Bernd Michael Kay Bail-ins Regulation EU Bank resolution and recovery directive Resolution BRRD Event study Bail-in Resolução Banco de recuperação e diretiva de resolução Expectativas de bail-out Domínio/Área Científica::Ciências Sociais::Economia e Gestão |
title_short |
The effects of bail-ins on bail-out expectations in the European Banking sector |
title_full |
The effects of bail-ins on bail-out expectations in the European Banking sector |
title_fullStr |
The effects of bail-ins on bail-out expectations in the European Banking sector |
title_full_unstemmed |
The effects of bail-ins on bail-out expectations in the European Banking sector |
title_sort |
The effects of bail-ins on bail-out expectations in the European Banking sector |
author |
Edelmann, Bernd Michael Kay |
author_facet |
Edelmann, Bernd Michael Kay |
author_role |
author |
dc.contributor.none.fl_str_mv |
Bonfim, Diana Carina Ribeiro Guimarães Veritati - Repositório Institucional da Universidade Católica Portuguesa |
dc.contributor.author.fl_str_mv |
Edelmann, Bernd Michael Kay |
dc.subject.por.fl_str_mv |
Bail-ins Regulation EU Bank resolution and recovery directive Resolution BRRD Event study Bail-in Resolução Banco de recuperação e diretiva de resolução Expectativas de bail-out Domínio/Área Científica::Ciências Sociais::Economia e Gestão |
topic |
Bail-ins Regulation EU Bank resolution and recovery directive Resolution BRRD Event study Bail-in Resolução Banco de recuperação e diretiva de resolução Expectativas de bail-out Domínio/Área Científica::Ciências Sociais::Economia e Gestão |
description |
In the aftermath of the Great Recession, sovereign guarantees and the associated bail-out ex-pectations caused a distortion in the cost of funding and risk-taking behaviour of financial in-stitutions. The Bank Recovery and Resolution Directive (BRRD) aims to achieve financial sta-bility through transparency and incentivizing market discipline. The central tool of the BRRD, the bail in, is a burden-sharing mechanism reallocating the cost of the gone concern of financial institutions. Forcing shareholders and creditors to participate in potential losses must increase monitoring, thus reducing the moral hazard of large financial institutions. If the directive is credible, these changes in bail-out expectations must be reflected in the security prices of all affected banks. As changes in regulation are introduced over several years, effects on market prices are difficult to observe. I show that the recurring resolution events between 2011 and 2016 across several Eurozone countries affected bail-out expectations, reaching a critical level in 2013. The write down of junior debt in Cyprus caused highly significant reactions on bank charter values and CDS spreads. From 2014 to 2016, effects were inconsistent and lacked di-rection. This decrease in market reactions points to the achievement of bail-in expectations through commitment and consistent implementation. Bail-in expectations imply the anticipa-tion of a bail-in in case of bank financial distress, which requires strict and diligent monitoring. |
publishDate |
2017 |
dc.date.none.fl_str_mv |
2017-07-26T11:59:32Z 2017-07-18 2017 2017-07-18T00:00:00Z |
dc.type.status.fl_str_mv |
info:eu-repo/semantics/publishedVersion |
dc.type.driver.fl_str_mv |
info:eu-repo/semantics/masterThesis |
format |
masterThesis |
status_str |
publishedVersion |
dc.identifier.uri.fl_str_mv |
http://hdl.handle.net/10400.14/22575 TID:201725282 |
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http://hdl.handle.net/10400.14/22575 |
identifier_str_mv |
TID:201725282 |
dc.language.iso.fl_str_mv |
eng |
language |
eng |
dc.rights.driver.fl_str_mv |
info:eu-repo/semantics/openAccess |
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openAccess |
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application/pdf |
dc.source.none.fl_str_mv |
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Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
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RCAAP |
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RCAAP |
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Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
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Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
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Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
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