Eurozone bank resolution and Bail-In - Intervention, triggers and writedowns

The European Union has recently introduced the Single Resolution Mechanism (SRM) to provide a consistent set of rules concerning Eurozone bank resolution. In this study, we retrospectively examine the implications of the SRM for Euro- zone banks during the global nancial crisis. Empirical results indicate that large, systemically important Eurozone banks would have exclusively required equity writedowns to cover impairment losses. However, to ensure adequate capitaliza- tion post bail-in, the majority of large, listed banks would have required conversion to equity for all subordinated and some senior debt creditors. Depositors would not have experienced writedowns in any of the banks examined. Given the subjec- tive nature of resolution triggers outlined in the SRM, we also study the potential benets of market and balance sheet dependent triggers. While our ndings sug- gest some weak evidence of a capacity to dierentiate between failed and surviving banks, the results are indicative of the diculties in mandating predened quan- titative resolution triggers.