Conclusion

• Author: Maccaferri, Sara; Bellia, Mario
• Pages: 41-41

41

Event

Date

Full

sample

G-SIB

Non-G-

SIB

G-SIB vs

Non-G-

SIB

GIIPS

Non

GIIPS

GIIPS vs

Non-GIIPS

Cumula ted

ave rage

-0.52 3%

-0.28 1%

-0.59 1%

0.31%

-2.06 1%

0.118%

-

2.179%***

T-tes t

-0.46 3

-0.18 6

-0.55 4

0.761

-1.20 5

0.118

-3.34 8

p-v alue

0.645

0.853

0.581

0.449

0.232

0.907

0.003

Table 42: Abnor mal bank CDS spre ads –Junior vs Sen ior CDS spre ads - Nord LB

Event

Date

Full

sample

G-SIB

Non-G-

SIB

G-SIB vs

Non-G-

SIB

GIIPS

Non

GIIPS

GIIPS vs

Non-

GIIPS

EC ap proves NordLB State

aid

05/12/19

Averag e

0.272

-0.153

0.504

-0.6 57

0.665

0.058

0.607

T-tes t

-0.251

0.142

-0.313

1.261

-0.233

-0.145

-0.801

p-v alue

0.80 2

0.887

0.755

0.218

0.817

0.885

0.439

Cumula ted

ave rage

0.268

-0.417

0.641

-1.058

0.846

-0.0 47

0.893

T-tes t

0.174

-0.272

0.279

-1.421

0.20 8

-0.0 83

0.70 7

p-v alue

0.86 2

0.786

0.781

0.16 5

0.836

0.9 34

0.49 4

4Conclusion

The JRC was requested by DG FISMA to support the work of the Evaluation Working Group established by the

FSB by replicating the analysis developed by Schäfer et al (2017). This paper analysed the reactions of CDS

and stock markets to se lected bail-in events occurred in Europe during the pe riod 2011-2014. Using the

methodology applied in this paper, the JRC replicated the results of the paper and also extended it assessing

the markets’ reactions to more recent events.

The first step was to reconstruct the database on European senior and junior CDS spreads and on stocks used

by Schäfer et al (2017). The comparison of selected statistics allowed concluding that, althoughfor some banks

the differences were rather substantial, the final dataset built by the JRC was similar to the one by Schäfer et

al (2017).

As a second step, the JRC implemented the event study methodology applied in the paper and replicated both

the baseline analyses on senior CDS spreads and stock markets and the analysis on the difference between

junior and senior CDS spreads.

JRC results on the senior CDS spreads and stock markets confirmed those by Schäfer et al (2017), as the

majority of events classified as significant by the JRC were also identified as significant by the paper. Also the

sign and magnitude of the coefficients, although not identical, were similar. When focusing on the differences

between junior and senior CDS, resultswere slightly less aligned.Replicating the two cross-sectional regressions

led to mixed results, mainly because the relationship between the dependent variable and the main explanatory

variables appeared to be quite volatile.

The prese nt report also analyze the markets’ reactions to more recent events not analysed in the paper by

Schafer et al. (2017), namely the resolution of the Spanish bank Banco Popular in 2017, the introduction of the

new Banking Package by the European Commission spanning the period 2016 -2019, the precautionary

recapitalization of MPS, the no-action of SRB for the Italian Banca Popolare di Vicenza S.p.A. and Veneto Banca

S.p.A, and finally the direct investment by the German Government in NordLB.

This report provides evidence that, taken as a whole, events and announcements no longer seem to trigger

abnormal reactions in bank funding markets after the bank prudential and resolution reforms have been

implemented as of 2016, with the notable exception of the banking package Council agreement of May 2018

(which further tightens the applicable prudential and resolution rules). This e vent triggers a sharp negative

reaction for the CDS market, where prices for protection increase, and a negativeresponse of the equitymarket,

where stock prices decrease. As in Schäfer et al (2017), the results suggest that the expectations of a bail-out

are reduced since the introduction of the new restructuring regime of bail-in.