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Subordinated Debt Under Bail-in Threat

University of Bologna Law Review (Forthcoming)

41 Pages Posted: 22 Jan 2017 Last revised: 25 Mar 2017

Edoardo Martino

Erasmus University Rotterdam (EUR), Erasmus School of Law, Rotterdam Institute of Law and Economics

Date Written: January 19, 2017

Abstract

This paper aims to address the role of subordinated liabilities within the new resolution framework resulting from the post-crisis reforms.

In particular, this study starts from the resolution intervention of four Italian banks in November 2015. The legal analysis of that resolution is complemented by an empirical analysis of the determinants of subordinated debt issuances for Italian banks. From this set of evidence is possible to infer the desirability of a well-functioning and dynamic market for subordinated debt. On the other hand, what clearly emerge is the incompatibility between such a market and the new regulatory framework as it is.

Therefore, this paper infers the inefficiency of a pure mandatory bail-in mechanism for subordinated debt, proposing to complement it with a contractual clause to bail-in subordinated creditors, tailored on coco bonds model, in order to enhance certainty amongst the contractual parties.

Keywords: Law and Economics, Law and Finance, European Banking Union, Resolution, Subordinated Bonds.; Decreto Salva Banche

JEL Classification: G21, G28, K22

Suggested Citation

Martino, Edoardo, Subordinated Debt Under Bail-in Threat (January 19, 2017). University of Bologna Law Review (Forthcoming). Available at SSRN: https://ssrn.com/abstract=2902134

Edoardo Martino (Contact Author)

Erasmus University Rotterdam (EUR), Erasmus School of Law, Rotterdam Institute of Law and Economics ( email )

Burgemeester Oudlaan 50
PO Box 1738
Rotterdam
Netherlands

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