How Are Coco Bonds Perceived? Going Concern, Gone Concern, or None of the Above?

Mouctar Bah, Koen Inghelbrecht, K. Schoors, Nicolas Soenen, Rudi Vander Vennet
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Abstract

We investigate the effectiveness of CoCo bonds as a credible recapitalization or resolution tool for distressed banks in Europe. Using yields on CoCo and senior bank bonds, we construct a CoCo premium to capture bank stress and we analyze whether or not this premium is related to bank systemic risk, captured by the marginal expected shortfall (MES), as well as individual bank risk. We find that increases of the CoCo spread are positively associated with both bank systemic risk and bank default risk. These results suggest that market participants do not consider CoCo bonds as ‘going concern’ capital. Since we also find that senior and subordinated bondholders perceive the probability of a bail-in as higher during times of an elevated CoCo premium, this implies that CoCo bonds are not considered as a credible recovery or resolution tool under the BRRD regime. Furthermore, the impact of CoCo bonds is not limited to bank-specific systemic and credit risk but also affects the risk profile of other banks. Our results suggest that policy actions are needed to render the European bank bail-in regime more credible.
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人们如何看待Coco Bonds ?持续经营,倒闭,还是以上都不是?
我们调查了CoCo债券作为欧洲陷入困境的银行的可靠资本重组或解决工具的有效性。利用CoCo和高级银行债券的收益率,我们构建了CoCo溢价来捕捉银行压力,并分析该溢价是否与银行系统风险(由边际预期缺口(MES)捕获)以及单个银行风险相关。我们发现CoCo息差的增加与银行系统性风险和银行违约风险呈正相关。这些结果表明,市场参与者不认为CoCo债券是“持续经营”资本。由于我们还发现,高级和次级债券持有人认为,在CoCo溢价较高的时期,内部纾困的可能性更高,这意味着在BRRD制度下,CoCo债券不被视为可靠的恢复或解决工具。此外,CoCo债券的影响不仅限于银行特有的系统和信用风险,还会影响其他银行的风险状况。我们的研究结果表明,需要采取政策行动,使欧洲银行纾困机制更加可信。
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