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Bail-in regulation and stock market reaction

Franco Fiordelisi, Federica Minnucci, Daniele Previati and Ornella Ricci

Economics Letters, 2020, vol. 186, issue C

Abstract: In response to the global financial turmoil and sovereign debt crisis, the European Union has introduced a new bail-in resolution mechanism based on the shared burden of losses between shareholders, debt-holders, and depositors. By focusing on the abnormal stock price reactions to bail-in policy announcements, this paper shows that investors perceive the new bail-in regime as a credible tool to decrease government interventions, reduce the too-big-to-fail problem, and increase market discipline in the European banking industry.

Keywords: Bail-in; Banking crises; Event study (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.econlet.2019.108801

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