Should the marketing of subordinated debt be restricted/different in one way or the other? What to do in the case of mis-selling?

Publication: White Paper No. 35
Topic Area: Financial Institutions
Authors: Martin Götz,
Tobias Tröger
Date: Mar 2016
Keywords: Bail-in, BRRD, subordinated debt, EU market regulation

An important prerequisite for the efficiency of bail-in as a regulatory tool is that debt holders are able to bear the cost of a bail-in. Examining European banks’ subordinated debt we caution that households may be investors in bail-in able bonds. Since households do not fulfil the aforementioned prerequisite, we argue that European bank supervisors need to ensure that banks’ bail-in bonds are held by sophisticated investors. Existing EU market regulation insufficiently addresses mis-selling of bail-in instruments.

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