Anatomy of a Bail-In

26 Pages Posted: 16 Jul 2013 Last revised: 10 Dec 2014

Thomas Conlon

University College Dublin

John Cotter

University College Dublin; Anderson School of Management

Date Written: March 26, 2014

Abstract

To mitigate potential contagion from future banking crises, the European Commission recently proposed a framework which would provide for the bail-in of bank creditors in the event of failure. In this study, we examine this framework retrospectively in the context of failed European banks during the global financial crisis. Empirical findings suggest that equity and subordinated bond holders would have been the main losers from the €535 billion impairment losses realized by failed European banks. Losses attributed to senior debt holders would, on aggregate, have been proportionally small, while no losses would have been imposed on depositors. Cross-country analysis, incorporating stress-tests, reveals a divergence of outcomes with subordinated debt holders wiped out in a number of countries, while senior debt holders of Greek, Austrian and Irish banks would have required bail-in.

Keywords: Bank Resolution, Bail-In, European Bank Failure, Global Financial Crisis, Impairment Charges

JEL Classification: G20, G21, G33

Suggested Citation

Conlon, Thomas and Cotter, John, Anatomy of a Bail-In (March 26, 2014). Journal of Financial Stability, Vol. 15, 2014. Available at SSRN: https://ssrn.com/abstract=2294100 or http://dx.doi.org/10.2139/ssrn.2294100

Thomas Conlon (Contact Author)

University College Dublin ( email )

Smurfit Graduate Business School
Blackrock
Co. Dublin, n/a
Ireland

John Cotter

Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

University College Dublin ( email )

School of Business, Carysfort Avenue
Blackrock, Co. Dublin
Ireland
353 1 716 8900 (Phone)
353 1 283 5482 (Fax)

HOME PAGE: http://www.ucd.ie/bankingfinance/staff/professorjohncotter/

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