Template-Type: ReDIF-Paper 1.0
Author-Name: Alessandro Di Stefano
Author-X-Name-First: Alessandro
Author-X-Name-Last: Di Stefano
Author-Name: Yvan Lengwiler
Author-X-Name-First: Yvan
Author-X-Name-Last: Lengwiler
Author-Name: Kumar Rishabh
Author-X-Name-First: Kumar
Author-X-Name-Last: Rishabh
Title: The credibility of bail-in
Abstract: The resolution framework for global systemically important banks has been over a decade in the making. The failure of Credit Suisse (CS) in March 2023 was its first major test. Authorities had a resolution plan in place but chose a different path amid financial stability concerns. They facilitated a takeover of CS by UBS, backed by public guarantees. Additional Tier 1 (AT1) bonds were written down in full; bail-in creditors, who would bear losses next under resolution, were left whole. We study how this episode reshaped bail-in credibility across Europe. Using bond-level data from 94 banks in 22 countries, we trace the repricing of AT1, bail-in, and senior debt over the subsequent year. AT1 spreads moved in line with jurisdiction-specific reg ulatory signals, while bail-in spreads and credit default swap subordination premia narrowed across the board, consistent with markets assigning a lower probability to bail-in. Lower-rated banks saw larger spread declines, and investor responsiveness to firm-specific disclosures fell, pointing to reduced market discipline. This evidence suggests the CS episode weakened bail-in credibility.
Creation-Date: 2026-06
File-URL: https://www.bis.org/publ/work1356.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1356.htm
File-Format: text/html
Number: 1356
Keywords: bank resolution, capital regulations, bail-in credibility, Credit Suisse
Classification-JEL: G21, G28, G01, G33, G14, G12
Handle: RePEc:bis:biswps:1356