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How do bail-in amendments in Directive (EU) 2017/2399 affect the subordinated bond yields of EU G-SIBs?

Giulio Velliscig, Josanco Floreani and Maurizio Polato

Journal of Empirical Finance, 2022, vol. 68, issue C, 173-189

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.

Keywords: Non-preferred senior debt; Subordinated debt; Bail-in; Creditor hierarchy; Resolution (search for similar items in EconPapers)
JEL-codes: G12 G21 G28 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.jempfin.2022.07.007

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