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STG/21/048#56765251

Abstract:

We assess the impact on bank bond holdings of regulatory changes in the requirements for bail-inable liabilities that are designed to facilitate an orderly resolution process, while reducing taxpayers-funded bailouts. Analysing confidential data on securities holdings by banks, we document that the introduction of the minimum requirements for eligible liabilities (MREL) induces banks to increase their holdings of eligible bank bonds issued by other banks, relative to non-eligible ones. Also, the requirements for own funds and eligible liabilities (TLAC) raise the incentives for non-issuing banks to invest in the eligible subordinated debt issued by global systemically important banks. Finally, we provide evidence of within-country concentration of bank bond holdings in the banking sector that might potentially raise constraints to the bail-in implementation