Abstract

What is the joint impact of different resolution regimes and capital requirements on the optimal liability structure of a bank holding insured deposits and issuing non-bail-inable debt and bail-inable Tier1-capital debt? We address this novel question and find that: (1) a credible bail-in resolution regime rules out extreme leverage and creates value by postponing default; (2) a positive probability of bail-out destroys credibility with dramatic effects on financial risk-taking, to the point of reversing the classical positive link between optimal leverage and growth prospects; and (3) a strict enforcement of the Basel III CET1 capital requirement strongly mitigates the impact of a non-credible resolution regime.
Lingua originaleEnglish
pagine (da-a)N/A-N/A
RivistaInternational Review of Financial Analysis
Volume73
DOI
Stato di pubblicazionePubblicato - 2021

Keywords

  • Bail-in
  • Bail-out
  • Bank capital structure
  • Endogenous default

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