Bail-in credibility: evidence from emerging markets

Giulio Velliscig, Stefano Piserà, Maurizio Polato and Josanco Floreani

International Journal of Emerging Markets, 2022, vol. 19, issue 7, 1901-1919

Abstract: Purpose - Some controversial cases of bail-in in the emerging countries have raised the question about whether for those countries to have in place a regulation for the bail-in is appropriate or not. To assess appropriateness, this paper investigates bail-in credibility among investors, as crucial condition for the credibility’s smooth implementation, by measuring the yield spread between bailinable and non-bailinable bonds. Design/methodology/approach - The authors compare the yield spread of banks located in emerging countries that have in place a framework for the bail-in to the comparable yield spread measured for banks located in emerging countries without such framework. The comparison permits to detect whether there is a significant difference between the two spreads, which would suggest that bail-in regulation has been deemed credible by market participants where enforced, or not, which in this case would signal a problem of credibility. Findings - The authors' results point out a significantly higher yield spread for banks located in emerging countries that have adopted a framework for the bail-in of creditors. Bail-in regulation has, therefore, being deemed credible in the adopting emerging countries, thus ensuring a crucial condition for bail-in regulation's smooth application. The authors also point out bank size and country's gross domestic product (GDP) growth as crucial moderators of bail-in expectations of market participants that can guide the implementation of bail-in rules in emerging countries. Originality/value - This paper contributes to the literature on the credibility of bail-in with a new perspective from the emerging countries.

Keywords: Bail-in; Credibility; Emerging countries; Global financial development report (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijoemp:ijoem-02-2022-0215

DOI: 10.1108/IJOEM-02-2022-0215

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