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Titel: Bank Governance and the Bail-in in the EU: A Law & Finance analysis on the role of bail-inable creditors
Sprache: Englisch
Autor*in: Martino, Edoardo David
Erscheinungsdatum: 2020
Tag der mündlichen Prüfung: 2020-09-10
This dissertation assesses the impact of the post-crisis stream of reforms on the corporate governance of European Banks. The project deals with the EU Directive on Bank Recovery and Resolution (BRRD) and investigates a fundamental question. Can the resolution framework for distressed banks enhance the quality of banks’ decision making?
According to the Directive, an administrative agency, the Resolution Authority, can impose losses on (a part of) the bank’s creditors should the bank become “failing or likely to fail”. Bail-inable creditors become residual claimants of the bank, contingent on its distress.
The dissertation proceeds in three main building blocks. First, it addresses the problem of what is good governance for banks and how bank governance relates to the resolution framework and to bail-inable creditors. Second, it analyses the is the impact of the BRRD on the governance role of bail-inable creditors. Third, building on the findings of the positive analysis, it proposes statutory reforms to exploit the positive interplay between bank governance and resolution.
The first part establishes an analytical framework for bank governance, starting from the problem of what can be defined as “good governance”. In fact, bank governance is special as compared with non-financial corporation, but what constitutes good bank governance is still unknown. The thesis contributes to this debate focusing on the relationship between substantive regulation and governance.
The analysis distils two crucial features. First, governance incentives and the goals of substantive regulation are often at odds and the two needs to be finetuned for achieving optimal results. Second, debt governance represents a crucial yet understudied area in bank governance, as it has the potential to curb excessive risk-taking and the (systemic) externalities stemming therefrom. In this regard, the existence of the EU resolution framework opens the possibility for a positive interplay between governance and regulation.
This approach innovates the literature on both bank governance and resolution. Bank governance is usually approached from the perspective of shareholders and/or the management rather than creditors. On resolution, the dissertation widens the current state of the literature on bank resolution, linking its ex-ante and ex-post natures.
The second part builds upon this analytical framework and carries out a positive analysis encompassing three channels of debt governance; namely, price internalisation of risk; contractual arrangements and the discrete impact of different type of creditors.
This approach innovates the debate on market discipline, that is usually limited to the ability of creditors to internalise different risk in the price of the securities. The dissertation starts from this premise and immediately highlights the efficiency of creditors’ discipline depends on the interplay between governance incentives and the design of substantive regulation. The existence of a resolution framework should incentivise bail-inable creditors to better discipline the borrowing bank; yet, the design of both the capital and resolution regulation largely foreclose such possibility to creditors.
Against this backdrop, the third part of the dissertation moves to the normative question of how to enable debt governance so to exploit the positive interplay between governance and resolution. The approach to this normative part combines and complements the study of cash flow rights of the management with the study of the voting rights to bail-inable creditors. Such a unified approach is rather uncommon in the literature, where cash flow rights and voting rights are often approached separately whereas those complement each other in the dissertation.
On the cash flow side, the dissertation proposes to include bail-inable debt as part of the variable remuneration for bank risk-takers. This would better align the incentives of bankers with the socially desirable outcomes; moreover, it would fix most of the flaws of the existing regulation on remuneration. From the standpoint of resolution, the proposal would enhance the credibility of the resolution framework and the resolvability of individual institutions.
On the voting right, the proposal is to grant a limited basket of ex-ante governance rights to bail-inable creditors. This would truly enable debt governance, circumventing the regulatory foreclosures highlighted during the positive analysis and restrain excessive risk-taking incentive in good times, when systemic-risk piles-up.
URL: https://ediss.sub.uni-hamburg.de/handle/ediss/8951
URN: urn:nbn:de:gbv:18-ediss-91847
Dokumenttyp: Dissertation
Betreuer*in: Ringe, Wolf Georg
Pacces, Alessio Maria
Enthalten in den Sammlungen:Elektronische Dissertationen und Habilitationen

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