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.
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