Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/193514
Authors: 
Schäfer, Alexander
Schnabel, Isabel
Weder di Mauro, Beatrice
Year of Publication: 
2016
Series/Report no.: 
ESRB Working Paper Series 7
Abstract: 
The declared intention of policy makers is that future bank restructuring should be conducted through bail-in rather than bail-out. Over the past years there have been a few cases of European banks being restructured where creditors were bailed in. This paper exploits these events to investigate the market reactions of stock prices and credit default swap (CDS) spreads of European banks in order to gauge the extent to which it is expected that bail-in will indeed become the new regime. We find evidence of increased CDS spreads and falling stock prices most notably after the bail-in in Cyprus. However, bail-in expectations appear to depend on the sovereign's fiscal strength, i. e., reactions are stronger for banks in countries with limited fiscal space for bail-out. Moreover, actual bail-ins lead to stronger market reactions than the legal implementation of bank resolution regimes, supporting the saying that actions speak louder than words.
Subjects: 
Bail-in
bank restructuring
Single Resolution Mechanism
creditor participation
event study
JEL: 
G21
G28
Persistent Identifier of the first edition: 
ISBN: 
978-92-95081-34-5
Document Type: 
Working Paper
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