The bail-in puzzle

  • Under the current conditions of a global financial crisis, notably in Europe’s banking industry, the governance role of bond markets is defunct. In fact, investors have understood that bank debt will almost always be rescued with taxpayers’ money. The widespread practice of government-led bank bailouts has thus severely corrupted the bond market, leading to the underestimation of risk and, as a consequence, the destruction of market discipline. Any feasible solution to the bank-debt-is-too-cheap problem will have to re-install true default risk for bank bond holders.

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Author:Jan Pieter KrahnenORCiDGND
Parent Title (English):Policy Platform - Policy Letter
Place of publication:Frankfurt am Main
Document Type:Report
Year of Completion:2011
Year of first Publication:2011
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2014/06/17
Tag:bank bonds; debt restructuring; financial stability
Page Number:3
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF)
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht