Determinants of bail-in debt yields in the EU banking sector: a multi-country approach with idiosyncratic factors

Manuel Monjas, María Rocamora and Nuria Suárez ()
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Manuel Monjas: Universidad Autónoma de Madrid
María Rocamora: European Banking Authority
Nuria Suárez: Universidad Autónoma de Madrid

Empirica, 2023, vol. 50, issue 4, No 9, 1055-1095

Abstract: Abstract We examine the effect of bank bail-in debt on investor risk perception after the implementation of the BRRD I in 2016. Using a sample of 62 banks from 14 European countries during 2009Q3–2019Q2, we find that bail-in debt yields increased compared with non bail-in debt instruments after 2016. Moreover, our results indicate that the increased risk sensitiveness for bail-in debt after the implementation of the BRRD I is more relevant in the case of smaller, less-capitalized and more efficient banks. Furthermore, issues of lower relative volume are also perceived as riskier. Results for the banking sector variables reveal that the new regulatory framework contributes more to the increase in yields of bail-in debt in countries with less concentrated and more profitable banking sectors and in less sound and larger banking systems. The results are robust to different model specifications, to potential endogeneity concerns and to different robustness tests.

Keywords: Bail-in debt; Yields; European BRRD I; Issue and bank features; Banking sector attributes (search for similar items in EconPapers)
JEL-codes: C58 E52 G21 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10663-023-09586-9

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