Bail‐in rules and the pricing of Italian bank bonds

We analyze whether the introduction of the bail‐in tool in January 2016 affected the pricing of Italian bank bonds. Using a unique dataset of 1,798 fixed‐rate bonds issued during the period 2013–2016, we find an increase of the spread at issuance of bail‐inable bonds compared to non‐bail‐inable bond...

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Bibliographic Details
Published in:European financial management : the journal of the European Financial Management Association 2019-11, Vol.25 (5), p.1321-1347
Main Authors: Crespi, Fabrizio, Giacomini, Emanuela, Mascia, Danilo V.
Format: Article
Language:English
Subjects:
bail‐in
bank bonds
Banks
Bond issues
Convertible bonds
Corporate bonds
cost of funding
G12
G21
G28
Profitability
Securities prices
too‐big‐to‐fail
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Summary:We analyze whether the introduction of the bail‐in tool in January 2016 affected the pricing of Italian bank bonds. Using a unique dataset of 1,798 fixed‐rate bonds issued during the period 2013–2016, we find an increase of the spread at issuance of bail‐inable bonds compared to non‐bail‐inable bonds. This increase also depends on the intrinsic characteristics of each bank. Large institutions, banks with lower ratings, profitability, capitalization, and higher liquidity faced a higher cost of issuing bail‐inable bonds. Overall, our results seem to support the hypothesis of an improved market discipline for the bank bond primary market.
ISSN:1354-7798
1468-036X
DOI:10.1111/eufm.12206