Bail-In or Bailout? Regulatory Power in CoCo Bond Yields

Jiacheng Chen, Walter Farkas and Patrick Lucescu
Additional contact information
Jiacheng Chen: University of Zurich - Department Finance; Climate Asset Management
Walter Farkas: University of Zurich - Department Finance; Swiss Finance Institute; ETH Zürich
Patrick Lucescu: University of Zurich - Department of Finance

No 26-30, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We examine whether market prices of contingent convertible (CoCo) bonds embed a jurisdiction-level component that reflects differences in perceived regulatory resolve to impose bail-in losses, beyond issuer risk and instrument design. Using a global panel of listed CoCos with daily yields and detailed contractual characteristics, we construct maturity-matched CoCo spreads and recover a jurisdiction-time pricing wedge from panel regressions that control for global time effects, bank fundamentals, and security features. We summarize this wedge in a market-implied Regulatory Power Index (RPI). The RPI shows economically meaningful cross-jurisdiction variation: jurisdictions where bail-in credibility is perceived to be stronger are priced with higher CoCo risk premia, while jurisdictions associated with greater expectations of forbearance or public support are priced with lower premia. Event-time difference-in-differences analyses around salient resolution and policy episodes---most notably the March 2023 Swiss AT1 write-down and a December 2024 Norwegian capital relief episode---reveal sharp, directionally consistent repricing of the jurisdictional premium. Overall, the RPI provides a high-frequency measure of how perceived regulatory power and resolution credibility are reflected in bank contingent-capital funding costs.

Keywords: AT1/CoCo; Bail-in; Bailout; Regulatory Power; Resolution Credibility; Jurisdictional Risk; Credit Spreads (search for similar items in EconPapers)
Pages: 39 pages
Date: 2026-03
References: Add references at CitEc
Citations:

Downloads: (external link)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=6301282 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2630

Access Statistics for this paper

More papers in Swiss Finance Institute Research Paper Series from Swiss Finance Institute Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal ().