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Archive » September 2015 » The new Eu banking resolution regime

The new Eu banking resolution regime

Sebastiano Laviola, Giuseppe Loiacono, Paolo Santella
September 2015 - n. 9
Jel codes: G01, G21, G28

The bail-in tool introduced in the EU Bank Recovery and Resolution Directive (Brrd) and in the Single Resolution Mechanism (Srm) Regulation is aimed at increasing the efficiency of the crisis resolution mechanisms by applying penalties not just on bank shareholders but also on other classes of creditors. Bail-in allows to internalize the costs of bank failures, limiting to the extent possible the costs for taxpayers through bailouts. The introduction of this instrument should then limit moral hazard and encourage bank creditors to be more selective in their investment decisions. In the article, we carry out a comparative analysis of the application of the bail-in tool to some countries' aggregate banking systems. Our study shows that for some countries the application of a level of 8% bail-in of total liabilities would involve that a certain volume of senior unsecured debt would be called to cover losses, in addition to capital and subordinated instruments. The study also shows that the bailinable liabilities with remaining maturity of at least one year - those that represent the most solid basis for bail-in - in some cases are lower than 15% of the total liabilities

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