Universität Bonn

Department of Economics

Maxi Günnewig - Uni Bonn (Finance Brown Bag)

"Bank Resolution and the Disciplining Effect of Demandable Debt", with Alkis Georgiadis-Harris

Abstract

In a model with asymmetric information on asset returns, banks issue demandable debt if the government's preferred resolution strategy takes the form of bail-ins. Creditors then respond to news on bank fundamentals and subsequent runs on loss-absorbing debt render bail-ins ineffective. Controlling the maturity structure of debt has two benefits. First, longer maturity debt disciplines markets ex-post while avoiding government bailouts. Second, ex-ante market discipline, measured by the average quality of projects, increases. The model provides an explanation why regulators impose minimum maturity requirements for bail-in debt and a motivation to treat short-term debt preferentially during intervention.

Additional information:

  • Speaker: Maxi Günnewig
  • Time: Wednesday, 24.11.2021, 14:45 - 16:00
  • Location: Faculty Lounge, Room 0.036 / Online via Zoom
  • Further links:
  • Organizer: Finance Group
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