Erschienen in:UNIVERSITÀ CATTOLICA DEL SACRO CUORE, Dipartimento di Economia e Finanza, Working Paper n. 52, November 2016
Umfang:
1 Online-Ressource (21 p)
Sprache:
Englisch
DOI:
10.2139/ssrn.2875880
Identifikator:
Entstehung:
Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments November 25, 2016 erstellt
Beschreibung:
To protect retail investors from the bail-in rule, we propose that banks should issue subordinated "contractual bail-in instruments", as defined in the BRRD, for an amount (together with Tier1 capital) at least equal to 8% of their liabilities. We support our argument by means of a theoretical model, where retail investors are uncertainty averse, due to their lack of information about the new "bailinable" regime. To the contrary, institutional investors are better informed. Within this framework, a bank is able to reduce the cost of debt by splitting it into a junior and a senior tranche, sold to institutional and retail investors respectively. This result is a deviation from the Modigliani-Miller theorem. We also provide some estimates of the amounts of contractual bail-in instruments that European banks should issue in order to reach the 8% target level. Such amounts are considerable, implying that the solution proposed here should be implemented gradually over a transition period