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Market Reactions to Resolution Events

In: The New Bail-In Legislation

Author

Listed:
  • Angela Maria Maddaloni

    (European Central Bank)

  • Giulia Scardozzi

    (Roma Tre University)

Abstract

The long period (from 2011 to 2019) wherein several instances of bank resolution resulted in bailout or bail-in allows to analyze how financial markets reacted. Using this relatively long time span and the different resolution events, a comparison of market reactions can be made according to the type of the event (e.g. bailout and bail-in) and the uncertainty surrounding its implementation. We analyzed the abnormal stock prices returns through event studies. The analysis shows a negative impact on the stock price returns following resolution cases regardless of the resolution mechanism implemented. The financial market reacts negatively when the resolution is undertaken within a bailout framework, but the reaction is smaller in absolute value when compared with bail-in resolution cases. However, after the formal approval of the bail-in regulation, investors began to react less negatively to bail-in resolution cases than to bailouts.

Suggested Citation

  • Angela Maria Maddaloni & Giulia Scardozzi, 2022. "Market Reactions to Resolution Events," Palgrave Macmillan Studies in Banking and Financial Institutions, in: The New Bail-In Legislation, chapter 0, pages 63-78, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-3-030-87560-2_5
    DOI: 10.1007/978-3-030-87560-2_5
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