Search

Copyright of Financial & Credit Activity: Problems of Theory & Practice is the property of University of Banking of the National Bank of Ukraine and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

The study provides an insight on the regulatory requirements that banks have been complying with since the financial crisis of 2009. Precisely, it focuses upon the Bank Recovery and Resolution Directive's full implementation and effectiveness. An empirical analysis on the European banks' CDS market sheds light on the mechanisms driving its current and historical developments, emphasizing the motivations for the change in the regulatory architecture. The policies will be proved to be effective in changing investors' risk perception, that is, a shift of risk burden from senior bondholders towards subordinated debt holders, as well as a breakdown of the link between banks and sovereigns' default probabilities, the so-called doom loop. Ultimately, a comparative analysis on banks' capital requirements, return on equity, leverage and risk weighted assets provides evidence on the impact regulations have on the European banks' business strategies, thereby shaping the New Normal. In conclusion, the paper discusses whether the current regulatory regime will be able to prevent future sources of instability. [ABSTRACT FROM AUTHOR]

This paper uses probabilistic causality measures to support decisions about bailouts of financial institutions in non-crisis periods. The model suggested is simple and can easily be applied by practitioners. The approach is tested with daily market-based data of six large UK financial institutions. Contrary to what many experts claim, this study shows evidence that rescuing financial institutions is not always needed in order to prevent systemic crises. [ABSTRACT FROM AUTHOR]