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KDI Journal of Economic Policy
Article . 2019
Data sources: DOAJ
EconStor
Article . 2019
License: CC BY SA
Data sources: EconStor
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Is Bail-in Debt Bail-inable?

Authors: HWANG, SUNJOO;

Is Bail-in Debt Bail-inable?

Abstract

The contingent convertible bond (or CoCo) is designed as a bail-in tool, which is written down or converted to equity if the issuing bank is seriously troubled and thus its trigger is activated. The trigger could either be rule-based or discretion-based. I show theoretically that the bail-in is less implementable and that the associated bail-in risk is lower if the trigger is discretion-based, as governments face greater political pressure from the act of letting creditors take losses. The political pressure is greater because governments have the sole authority to activate the trigger and hence can be accused of having 'blood on their hands'. Furthermore, the pressures could be augmented by investors’ self-fulfilling expectations with regard to government bailouts. I support this theoretic prediction with empirical evidence showing that the bailin risk premiums on CoCos with discretion-based triggers are on average 1.13 to 2.91%p lower than CoCos with rule-based triggers.

Country
Korea (Republic of)
Related Organizations
Keywords

G28, Bail-ins, discretion-based triggers, ddc:330, contingent convertible bonds, Social Sciences, rule-based triggers, HB1-3840, H, Industries. Land use. Labor, Discretion-based Triggers, Economic theory. Demography, G21, Contingent Convertible Bonds, bail-ins, G01, G12, Rule-based Triggers, HD28-9999

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selected citations
These citations are derived from selected sources.
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
0
Average
Average
Average
gold
Related to Research communities
Science and Innovation Policy Studies