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
Abstract:

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.

This paper was provided at the request of the Committee on Economic and Monetary Affairs of the European Parliament and commissioned and drafted under the responsibility of the Economic Governance Support Unit (EGOV) of the European Parliament. It was originally published on the European Parliament’s webpage:

 

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