The bail-in tool from a Swedish perspective
Date
23/09/2014
Elin Eliasson, Emil Jansson and Thomas Jansson analyse the so-called bail-in tool, which is a central part of the Bank Recovery and Resolution Directive adopted by the EU in the spring of 2014. This Directive contains regulations regarding plans and tools to manage banks in various stages of financial problems.
The bail-in tool gives the authorities the right to, in combination with other measures, write down a bank's liabilities, or to convert the liabilities to share capital to recapitalise the bank. The article analyses the bail-in tool from a Swedish perspective.
The authors examine how the introduction of such a tool might affect the major Swedish banks' funding costs, debt structure and investor base. They have also studied possible contagion effects, both direct and indirect, of actually using the tool on one of the major Swedish banks. The introduction of the tool is expected to lead to somewhat higher total funding costs for Swedish banks. The direct contagion effects, at least to other banks, of using the bail-in tool should be limited, while the indirect effects could be greater in Sweden than in other countries, as the Swedish banks are so closely interconnected and heavily dependent on market funding.
The article is included in this year's second issue of the Sveriges Riksbank Economic Review .
By Elin Eliasson, Emil Jansson and Thomas Jansson
The authors are or have been employed at the Financial Stability Department or the Monetary Policy Department, Sveriges Riksbank.
