Bail‐In Rules and the Pricing of Italian Bank Bonds

27 Pages Posted: 19 May 2020

See all articles by Fabrizio Crespi

Fabrizio Crespi

Universita di Cagliari

Emanuela Giacomini

University of Florida - Warrington College of Business Administration

Danilo V. Mascia

University of Leeds; University of Leeds - Faculty of Business

Date Written: November 2019

Abstract

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.

Keywords: bail‐in, bank bonds, cost of funding, too‐big‐to‐fail

JEL Classification: G12, G2, G21, G28

Suggested Citation

Crespi, Fabrizio and Giacomini, Emanuela and Mascia, Danilo V., Bail‐In Rules and the Pricing of Italian Bank Bonds (November 2019). European Financial Management, Vol. 25, Issue 5, pp. 1321-1347, 2019, Available at SSRN: https://ssrn.com/abstract=3600277 or http://dx.doi.org/10.1111/eufm.12206

Fabrizio Crespi (Contact Author)

Universita di Cagliari ( email )

Cagliari, 09124
Italy

Emanuela Giacomini

University of Florida - Warrington College of Business Administration ( email )

Gainesville, FL 32611
United States

Danilo V. Mascia

University of Leeds ( email )

Leeds, LS2 9JT
United Kingdom

University of Leeds - Faculty of Business ( email )

Leeds LS2 9JT
United Kingdom

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