Using a diff-in-diff analysis, we compare the yield reaction of subordinated bonds to the implementation of the Directive (EU) 2017/2399, for EU G-SIBs and smaller banks. We find an increase in the yields of EU G-SIBs relative to smaller banks of between 0.24 and 0.31 basis points. Such repricing indicates higher bail-in expectations among subordinated bondholders as the Directive's provisions improve the effectiveness of the bail-in. Moreover, this result implies the higher risk profile of subordinated bondholders following the implementation of the new Directive and suggests that its measures might be effective in restoring market discipline.
How do bail-in amendments in Directive (EU) 2017/2399 affect the subordinated bond yields of EU G-SIBs?
Velliscig G.;Floreani J.
;Polato M.
2022-01-01
Abstract
Using a diff-in-diff analysis, we compare the yield reaction of subordinated bonds to the implementation of the Directive (EU) 2017/2399, for EU G-SIBs and smaller banks. We find an increase in the yields of EU G-SIBs relative to smaller banks of between 0.24 and 0.31 basis points. Such repricing indicates higher bail-in expectations among subordinated bondholders as the Directive's provisions improve the effectiveness of the bail-in. Moreover, this result implies the higher risk profile of subordinated bondholders following the implementation of the new Directive and suggests that its measures might be effective in restoring market discipline.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
