Post on 19-Feb-2017
The Senior Unsecured Debt of European BanksHow Unsecured after the Implementation of the Bank Recovery and
Resolution Directive?
Valentino Di RienzoSupervised by: Prof. Andrea Cesare Resti
Bocconi University
7th April 2016
1 Abstract
2 The Legal Framework of the BRRD - Research Question
3 Methodology
4 Results
5 Conclusions
Valentino Di Rienzo The Senior Unsecured Debt of European Banks 2 / 28
Abstract
The Banking Recovery and Resolution Directive (the ”BRRD”) is a new regulatory frameworkfor credit and financial institution instability at European level. Unlike previous legal schemes,the new regulation shifts the burden of recovery from taxpayers’ funds to institution stakeholders.From the depositor to the senior bondholder, from the subordinate bondholder to the shareholder,bank investors will be asked to contribute to recapitalize the institution on the brink of insolvency.We examined how senior unsecured debt of a pool of German banks and of a pool of Italian banksreacted to the implementation of the Directive on specific dates when unexpected news regardingthe BRDD application became public. Given the event clustering that is typical in an eventstudy that wants to assess the impact of a specific regulation, we implemented the Kolari andPynnonen (2010) correction for within bank security correlation. Our analysis shows that followingnews releases, investors actually readjusted their preferences towards capital instruments that theEuropean regulator excluded from recapitalization. Once controlling for cross correlation, theeffect is generally not significant anymore
Valentino Di Rienzo The Senior Unsecured Debt of European Banks 3 / 28
The Bank Recovery and Resolution Directive
It stands for the European solution to the ”Too Big to Fail” paradigm. Theinstitution’s investor will contribute to the recapitalisation and not the tax-payers (Art. 10, Art, 31, Art, 36 et al.). The Directive passed on 15th May2014
The Directive introduces the Bail-in tool: The resolution authority can in-ternalise the institution’s losses through a conversion to equity or reduce theprincipal amount of claims. The tool is enforceable from 1st January 2016
Scope of the Bail-in tool The European regulator designed the bail-in toolto be applied to all institution’s liabilities. Specific exceptions comprehend:
1 Deposits up to EUR 100,000 (Covered Deposits)
2 Secured liabilities including e.g. Covered Bonds
Valentino Di Rienzo The Senior Unsecured Debt of European Banks 4 / 28
The Bail-in Hierarchy Scheme
Research QuestionHow did the senior unsecured debt of a pool of German and Italian banks react to
the introduction of the new legislation?
Valentino Di Rienzo The Senior Unsecured Debt of European Banks 5 / 28
1 Abstract
2 The Legal Framework of the BRRD - Research Question
3 Methodology
4 Results
5 Conclusions
Valentino Di Rienzo The Senior Unsecured Debt of European Banks 6 / 28
The Sample
We focused on evaluating the impact over the German and Italian bank systemthrough the biggest national banks in terms of total assets1
Through the BloombergTM termi-nal, we retrieved the interesteddebt securities belonging to thoseissuers according to the followingcriteria:
1 Collateral Type (SeniorUnsecured or Covered)
2 Amount outstanding
3 Date of issue
4 Maturity
1The Italian sample accounts for nearly 45% of market share in domestic customer loans; theGerman sample accounts for nearly 48% of market share in domestic customer loans
Valentino Di Rienzo The Senior Unsecured Debt of European Banks 7 / 28
The Event Study
The Event Study ApproachWe implemented an Adjusted Market Model that would describe the bondbehaviour in the estimation window
YLDiτ = αi + βi iTraxxbnk,τ + γi CDScountry ,τ
The Event Date is set to τ = 0
Estimation Window (L2) is set−60 ≤ τ ≤ 2 days
Event Window is set to−2 ≤ τ ≤ 2 days
YLDiτ is the mid yield to maturity ofbond i at time τCDScountry,τ corresponds to theNational (Ger or Ita) Credit DefaultSwapModified version of iTraxx EuropeSenior Financial Index at time τ
SCAR t−test =(
N(L1 − 5)L1 − 3
) 12
SCAR i (τ1, τ2) (1)
SCAR2t−test ∼ N (0, 1)
2The Prediction Error formula is in the appendixValentino Di Rienzo The Senior Unsecured Debt of European Banks 8 / 28
The Regulatory Event Study - Problems and Solutions(1/2)
1 - Exact Event DatesRegulatory change largerly expected from the market (G20 PittsburghSummit 2009)
Exploiting unexpected peculiarities of national implementation acts
Germany1 10th May 2015, First public
consultation of DraftImplementation Decree
Italy1 29th July 2015, First public
consultation of DraftImplementation Decree
2 24th August 2015, BloombergNews on Italian ExtendedPreference
3 23nd November 2015,Resolution of four Italian banks
Valentino Di Rienzo The Senior Unsecured Debt of European Banks 9 / 28
The Regulatory Event Study - Problems and Solutions(2/2)2 - Event Clustering
Abnormal returns inside the event window are not independent. They shareall the same event, so the SCARt−test reveals to be less powerful
Exploit the Kolari and Pynnonen (2010) approach. It assumes q industriesfor k = 1.....q where all have the same event date but the inter-industrycorrelations are zero. Meanwhile within each subgroup the variances of thestandardised returns are the same
Average sample correlation
˜r = 1n(n − 1)
q∑k=1
nk(nk − 1)rk (2)
Adjusted SCARt−test
K&Ptest = SCAR t−test√1 + (n − 1)˜r
(3)
Valentino Di Rienzo The Senior Unsecured Debt of European Banks 10 / 28
1 Abstract
2 The Legal Framework of the BRRD - Research Question
3 Methodology
4 Results
5 Conclusions
Valentino Di Rienzo The Senior Unsecured Debt of European Banks 11 / 28
Control and Treatment Group
Treatment GroupSenior Unsecured bonds of picked
issuersGermany 32 bonds
Italy 62 bonds
Control GroupCovered bonds of picked issuers
Germany 37 bondsItaly 38 bonds
The bail-in operability allows us to select a Treatment and a Control groupthat match issuers’ idiosyncrasies
Did investors preferences shift from ’bail-inable’ to ’not bail-inable’ instruments?
Valentino Di Rienzo The Senior Unsecured Debt of European Banks 12 / 28
Germany
Table: SCARt−test 10th March
SCAR test Senior SCAR test Covered test diff
-9,339 -15,572 3.648***
Table: K&Ptest 10th Marchr senior r covered SCAR test Senior SCAR test Covered test diff
0.165 0.16 -3.77 -5.91 1.46
Valentino Di Rienzo The Senior Unsecured Debt of European Banks 13 / 28
Italy - 29th July
Table: SCARt−test 29th July
SCAR test Senior SCAR test Covered test diff
-7.75 -19.46 10.66***
Table: K&Ptest - 29th July
r Senior r Covered SCAR test Senior SCAR test Covered test diff
0.286 0.292 -1.696 -5,742 2.85***
Valentino Di Rienzo The Senior Unsecured Debt of European Banks 14 / 28
Italy - 24th August
Table: SCARt−test 24th August
SCAR test Senior SCAR test Covered test diff
-17.613 -20.546 5.492***
Table: K&Ptest - 24th August
r Senior r Covered SCAR test Senior SCAR test Covered test diff
0.258 0.272 -4,306 -6.253 1.536
Valentino Di Rienzo The Senior Unsecured Debt of European Banks 15 / 28
Italy - 23rd November
Table: SCARt−test 23rd November
SCAR test Senior SCAR test Covered test diff
-9.761 -11.206 2.90***
Table: K&Ptest - 23td November
r Senior r Covered SCAR test Senior SCAR test Covered test diff
0.260 0.243 -2.377 -3.587 0,81
Valentino Di Rienzo The Senior Unsecured Debt of European Banks 16 / 28
1 Abstract
2 The Legal Framework of the BRRD - Research Question
3 Methodology
4 Results
5 Conclusions
Valentino Di Rienzo The Senior Unsecured Debt of European Banks 17 / 28
Conclusions and Further Research
Bail-in related events seem to have had influence investors’ preferences.SCARt−tests show for both Germany and Italy a shift from ’bail-inable’ to’not bail-inable’
The effect seems to disappear once controlling for within group correlation
Further studies should focus on retrieve bond liquidity
Self-financing portfolio strategies for single issuers
Bail-in effect on Probability od Default (PD) and Loss Given Default (LGD)
Valentino Di Rienzo The Senior Unsecured Debt of European Banks 18 / 28
Appendix
German Senior Bond list
German Covered Bond list
Italian Senior Bond list
Italian Covered Bond list
iTraxx Europe FIN SNR components
Prediction Error
Bibliography
Valentino Di Rienzo The Senior Unsecured Debt of European Banks 19 / 28
Table: German Senior Unsecured Bonds - Description
bond ID bnk tag Currency Amt Out Maturity CPN FXD/FRNDE000DB5DCS4Corp 1 EUR 2MMM 1/11/2023 2.375 FXDDE000DB5S5U8Corp 1 EUR 3.35MMM 8/31/2017 5.125 FXDDE000DB7XHM0Corp 1 EUR 2.1MMM 4/15/2019 0.501 FRNDE000DB7XJB9Corp 1 EUR 2MMM 9/8/2021 1.25 FXDDE000DB7XJC7Corp 1 EUR 1.5MMM 9/10/2021 0.534 FRNDE000DB7XLS9Corp 1 EUR 3.5MMM 3/11/2016 0.131 FRNDE000CZ226Y9Corp 2 EUR 1.5MMM 3/22/2017 3.875 FXDDE000CZ302M3Corp 2 EUR 1MMM 9/16/2020 4 FXDDE000CZ40HY9Corp 2 EUR 1MMM 7/10/2017 3.625 FXDDE000LB0CW00Corp 3 EUR 250MM 9/29/2017 0.486 FRNDE000LB0N4Q2Corp 3 EUR 200MM 8/9/2017 1.36 FXDDE000LBW1RV4Corp 3 EUR 500MM 12/15/2015 0.169 FRNDE000LBW4P10Corp 3 EUR 250MM 12/28/2015 0.01 FRNXS0180501537Corp 3 EUR 300MM 12/30/2015 4.75 FXDXS0213750630Corp 3 EUR 200MM 12/30/2015 0.029 FRNXS0214445610Corp 3 EUR 200MM 12/15/2015 0.027 FRNXS0217149920Corp 3 EUR 200MM 12/21/2015 0.023 FRNXS0217594497Corp 3 EUR 400MM 12/30/2015 0 FRNXS0218651684Corp 3 EUR 200MM 12/30/2015 0 FRNXS0223551804Corp 3 EUR 250MM 12/30/2015 0.009 FRNDE000HLB0CX3Corp 4 EUR 200MM 5/9/2017 4.125 FXDDE000HLB0E75Corp 4 EUR 200MM 6/21/2016 5 FXDDE000HLB1LX2Corp 4 EUR 500MM 8/8/2017 0.429 FRNDE000HLB3NX4Corp 4 EUR 250MM 7/1/2020 3 FXDDE000WLB43N7Corp 4 EUR 500MM 5/20/2016 4.25 FXDDE000WLB43R8Corp 4 EUR 500MM 5/24/2017 3.4 FXDXS0209903847Corp 4 EUR 200MM 12/18/2015 0.043 FRNDE000DZ1JAH9Corp 5 EUR 200MM 6/25/2019 0.211 FRNDE000DZ1JHY9Corp 5 EUR 250MM 2/9/2018 0.312 FRNDE000DZ1JLP9Corp 5 EUR 225MM 4/10/2018 0.291 FRNXS0787076826Corp 5 CHF 416.32MM 5/23/2017 0 FRNXS1140903367Corp 5 CHF 207.89MM 11/25/2019 0.13 FXDM = Thousand; MM = Million; MMM = Billion1 = DB; 2 = CMZB, 3 = LBBW; 4 = HESLAN; 5 = DZBK
Valentino Di Rienzo The Senior Unsecured Debt of European Banks 20 / 28
Table: German Covered Bonds - Description
bond ID bnk tag Currency Amt Out CPN Maturity FXD/FRNDE000DB5DCP0Corp 1 EUR 100MM 0.13 8/2/2017 FRNDE000DB5DCK1Corp 1 EUR 750MM 1.38 9/7/2020 FXDDE000DB7URS2Corp 1 EUR 1000MM 3.75 6/9/2016 FXDDE000DB5DCN5Corp 1 EUR 500MM 1.75 6/8/2022 FXDDE000DB5DCM7Corp 1 EUR 500MM 2.13 3/1/2019 FXDDE000DB7XQN9Corp 1 EUR 120MM 0.00 9/9/2019 FRNDE000CZ439A8Corp 2 EUR 500MM 1.50 2/28/2018 FXDDE000CZ40KE5Corp 2 EUR 500MM 1.00 2/5/2019 FXDDE000CZ40JW9Corp 2 EUR 500MM 1.63 10/19/2020 FXDDE000CZ40KA3Corp 2 EUR 500MM 1.00 2/5/2019 FXDDE000CZ40J26Corp 2 EUR 500MM 2.00 11/27/2023 FXDDE000CZ40JR9Corp 2 EUR 500MM 1.00 6/25/2018 FXDDE000LB0LCG3Corp 3 EUR 110MM 0.09 3/22/2017 FRNDE000LB0B9J0Corp 3 EUR 1375MM 2.25 6/21/2016 FXDDE000LB0WJ78Corp 3 EUR 100MM 0.00 2/28/2019 FRNDE000LB0M596Corp 3 EUR 850MM 1.38 6/1/2018 FXDDE000LBW6QJ0Corp 3 EUR 300MM 0.20 12/15/2015 FRNDE000LBW2J02Corp 3 EUR 185MM 0.11 12/14/2015 FRNDE000WLB6AL0Corp 4 EUR 1450MM 4.13 6/8/2016 FXDDE000HLB3MQ0Corp 4 EUR 500MM 3.00 9/4/2017 FXDXS0946694055Corp 4 EUR 1000MM 1.00 6/26/2018 FXDXS1071847245Corp 4 EUR 1000MM 1.13 5/27/2021 FXDXS0775280166Corp 4 EUR 1000MM 2.00 4/26/2019 FXDXS1036039433Corp 4 EUR 1000MM 1.00 2/25/2019 FXDXS1002933668Corp 4 EUR 1000MM 0.75 12/11/2017 FXDXS0946693834Corp 4 EUR 1000MM 1.88 6/26/2023 FXDXS1143602792Corp 4 EUR 1000MM 0.13 11/27/2018 FXDXS0619232928Corp 4 EUR 1000MM 3.25 4/20/2016 FXDXS0851669050Corp 4 EUR 500MM 0.88 11/6/2017 FXDDE000DZ1G1U4Corp 5 EUR 100MM 0.00 12/11/2017 FRNDE000DZ1JP80Corp 5 EUR 120MM 1.60 12/17/2021 STEP CPNDE000DZ5WF99Corp 5 EUR 125MM 0.25 10/17/2017 FRNDE000DZ9U923Corp 5 EUR 125MM 1.50 7/26/2018 FXDDE000DZ1J469Corp 5 EUR 100MM 0.02 12/16/2016 FXDDE000DZ3QAN8Corp 5 EUR 100MM 1.20 9/20/2017 FXDDE000DZ1J5F3Corp 5 EUR 100MM 0.02 1/22/2016 FXDDE000DZ1JQU8Corp 5 EUR 100MM 1.00 3/30/2018 FXDDE000DZ1JQC6Corp 5 EUR 100MM 0.88 12/19/2017 FXDM = Thousand; MM = Million; MMM = Billion1 = DB; 2 = CMZB, 3 = LBBW; 4 = HESLAN; 5 = DZBK
Valentino Di Rienzo The Senior Unsecured Debt of European Banks 21 / 28
Table: Italian Senior Bonds - Descriptionbo
ndID
bnk
tag
Cur
renc
yA
mt
Out
CP
NM
atur
ityFX
D/F
RN
IT00
0453
2187
Corp
1EU
R80
2.51
MM
FRN
30/1
0/20
16FR
NIT
0004
6193
64Co
rp1
EUR
879.
22M
MFR
N03
/08/
2017
FRN
US4
6115
HA
K32
Corp
1U
SD1.
13M
MM
FXD
16/0
1/20
18FX
DX
S030
0196
879C
orp
1EU
R1.
11M
MM
FRN
18/0
5/20
17FR
NX
S030
4508
921C
orp
1EU
R1.
25M
MM
FXD
15/0
6/20
17FX
DX
S046
7864
160C
orp
1EU
R1.
3MM
MFX
D23
/11/
2016
FXD
XS0
5001
8784
3Cor
p1
EUR
1.16
MM
MFX
D14
/04/
2020
FXD
XS0
5559
7731
2Cor
p1
EUR
1.29
MM
MFX
D08
/11/
2018
FXD
XS0
5773
4752
8Cor
p1
EUR
1.2M
MM
FXD
14/0
1/20
16FX
DX
S075
0763
806C
orp
1EU
R1M
MM
FXD
28/0
2/20
17FX
DX
S082
9329
506C
orp
1EU
R1.
25M
MM
FXD
19/0
9/20
16FX
DX
S084
2828
120C
orp
1EU
R1.
25M
MM
FXD
15/1
0/20
19FX
DX
S085
2993
285C
orp
1EU
R1.
71M
MM
FXD
09/1
1/20
17FX
DX
S098
6194
883C
orp
1EU
R1M
MM
FXD
30/1
0/20
23FX
DX
S099
7333
223C
orp
1EU
R1M
MM
FXD
28/0
1/20
19FX
DX
S101
8032
950C
orp
1EU
R75
0MM
FXD
17/0
1/20
22FX
DX
S105
7822
766C
orp
1EU
R1M
MM
FRN
17/0
4/20
19FR
NX
S107
7772
538C
orp
1EU
R1.
2MM
MFX
D18
/06/
2021
FXD
XS1
1680
0390
0Cor
p1
EUR
1.5M
MM
FXD
14/0
1/20
20FX
DX
S119
7351
577C
orp
1EU
R1.
5MM
MFX
D04
/03/
2022
FXD
XS1
2094
4622
5Cor
p1
EUR
1.06
MM
MFR
N26
/03/
2017
FRN
XS1
2216
7658
5Cor
p1
EUR
1MM
MFR
N23
/01/
2017
FRN
IT00
0465
9758
Corp
2EU
R98
8.25
MM
FRN
30/1
2/20
16FR
NX
S098
6090
164C
orp
2EU
R75
0MM
FXD
28/0
4/20
17FX
DX
S103
3018
158C
orp
2EU
R1M
MM
FXD
18/0
2/20
19FX
DIT
0003
7951
32Co
rp3
EUR
1.8M
MM
FRN
30/1
2/20
19FR
NIT
0003
9286
26Co
rp3
EUR
1.5M
MM
FRN
30/0
9/20
20FR
NIT
0003
9788
94Co
rp3
EUR
2MM
MFR
N20
/12/
2017
FRN
IT00
0455
1419
Corp
3EU
R90
0MM
FRN
18/1
2/20
15FR
NIT
0004
5572
18Co
rp3
EUR
1.03
MM
MFR
N15
/01/
2016
FRN
IT00
0456
5781
Corp
3EU
R1.
03M
MM
FRN
16/0
2/20
16FR
NIT
0004
5874
96Co
rp3
EUR
811.
32M
MFR
N31
/03/
2016
FRN
IT00
0460
7302
Corp
3EU
R56
8.08
MM
FRN
31/0
5/20
16FR
NIT
0004
6285
48Co
rp3
EUR
561.
43M
MFR
N10
/09/
2016
FRN
IT00
0463
8653
Corp
3EU
R50
0MM
FRN
30/0
9/20
16FR
NIT
0004
6446
02Co
rp3
EUR
1.21
MM
MFR
N29
/10/
2016
FRN
IT00
0466
9575
Corp
3EU
R1.
98M
MM
FRN
31/0
1/20
17FR
NIT
0004
6808
04Co
rp3
EUR
1MM
MFR
N28
/02/
2017
FRN
IT00
0475
0615
Corp
3EU
R1.
24M
MM
VAR
13/0
9/20
17VA
RIT
0004
7625
78Co
rp3
EUR
500M
MFR
N31
/10/
2017
FRN
IT00
0476
2586
Corp
3EU
R1.
35M
MM
VAR
30/0
9/20
17VA
RIT
0004
7675
77Co
rp3
EUR
790.
7MM
VAR
31/1
0/20
17VA
RIT
0004
7762
30Co
rp3
EUR
684.
39M
MFR
N19
/12/
2017
FRN
IT00
0485
4060
Corp
3EU
R70
0MM
ZERO
CPN
31/1
0/20
17ZE
ROCP
NIT
0004
9408
77Co
rp3
EUR
979.
28M
MFX
D10
/09/
2016
FXD
IT00
0496
7383
Corp
3EU
R69
4.95
MM
FXD
29/1
1/20
16FX
DX
S020
7065
110C
orp
3EU
R75
0MM
FXD
29/0
1/20
20FX
DX
S024
7757
718C
orp
3EU
R1M
MM
FRN
15/0
3/20
16FR
NX
S053
2910
402C
orp
3EU
R1M
MM
FRN
26/0
9/20
16FR
NX
S075
4588
787C
orp
3EU
R1.
5MM
MFX
D07
/03/
2017
FXD
XS0
8634
8233
6Cor
p3
EUR
1MM
MFX
D11
/01/
2018
FXD
XS0
9357
9593
9Cor
p3
EUR
1MM
MFR
N22
/01/
2016
FRN
XS0
9736
2351
4Cor
p3
EUR
1.25
MM
MFX
D24
/01/
2019
FXD
XS1
0049
1877
4Cor
p3
EUR
1MM
MFX
D16
/12/
2016
FXD
XS1
0146
2757
1Cor
p3
EUR
1.25
MM
MFX
D14
/01/
2021
FXD
XS1
0557
2573
0Cor
p3
EUR
1.25
MM
MFR
N10
/04/
2017
FRN
XS1
0787
6081
3Cor
p3
EUR
1MM
MFX
D19
/06/
2019
FXD
XS1
1697
0708
7Cor
p3
EUR
1MM
MFR
N19
/02/
2020
FRN
IT00
0486
6551
Corp
4EU
R81
8.24
MM
FRN
06/1
2/20
17FR
NX
S088
0063
994C
orp
4EU
R1.
25M
MM
FXD
28/0
1/20
16FX
DX
S104
4894
944C
orp
4EU
R1.
25M
MM
FXD
14/0
3/20
19FX
DX
S107
0681
397C
orp
4EU
R75
0MM
FXD
22/0
1/20
18FX
D**
*M=
Tho
usan
d;M
M=
Mill
ion;
MM
M=
Bill
ion
1=
ISPI
M;2
=U
CGIM
,3=
UB
IIM;4
=B
PIM
Valentino Di Rienzo The Senior Unsecured Debt of European Banks 22 / 28
Table: Italian Covered Bonds - Description
bond ID bnk tag Currency Amt Out CPN Maturity FXD/FRNIT0004690126Corp 1 EUR 2500MM 4.375 16aug2016 FXDIT0004839046Corp 1 EUR 1353MM 5 1/27/2021 FXDIT0004839251Corp 1 EUR 1813MM 3.25 4/28/2017 FXDIT0004852189Corp 1 EUR 1000MM 3.75 9/25/2019 FXDIT0004872328Corp 1 EUR 1250MM 3.625 12/5/2022 FXDIT0004889421Corp 1 EUR 1000MM 3.375 1/24/2025 FXDIT0004961295Corp 1 EUR 750MM 2.25 9/24/2018 FXDIT0004966260Corp 1 EUR 2200MM .526 4/6/2016 FRNIT0004992787Corp 1 EUR 1250MM 3.25 2/10/2026 FXDIT0005022675Corp 1 EUR 2350MM .658 8/20/2018 FRNIT0005022725Corp 1 EUR 1715MM .658 8/20/2021 FRNIT0005082786Corp 1 EUR 1000MM .625 1/20/2022 FXDIT0004558794Corp 2 EUR 1000MM 4 12/16/2019 FXDIT0004682305Corp 2 EUR 1000MM 5.25 1/28/2021 FXDIT0004692346Corp 2 EUR 750MM 4.5 2/22/2016 FXDIT0004966195Corp 2 EUR 1500MM 3.125 10/14/2020 FXDIT0004992878Corp 2 EUR 1000MM 3.125 2/5/2024 FXDIT0005002677Corp 2 EUR 700MM .626 3/5/2019 FRNIT0005067076Corp 2 EUR 1000MM 1.25 2/7/2025 FXDIT0004511959Corp 3 EUR 2500MM 4.25 7/29/2016 FXDIT0004547409Corp 3 EUR 1000MM 4.375 1/31/2022 FXDIT0004689433Corp 3 EUR 1250MM 5.25 4/30/2023 FXDIT0004734429Corp 3 EUR 1000MM 4.25 7/31/2018 FXDIT0004760341Corp 3 EUR 1000MM 5 10/31/2021 FXDIT0004846793Corp 3 EUR 1000MM 4 1/31/2018 FXDIT0004887078Corp 3 EUR 1000MM 2.75 1/31/2020 FXDIT0004932619Corp 3 EUR 1000MM 1.875 1/31/2019 FXDIT0004957137Corp 3 EUR 1000MM 2.625 10/31/2020 FXDIT0004983265Corp 3 EUR 1200MM .681 1/31/2017 FRNIT0004988538Corp 3 EUR 500MM .483 1/31/2017 FRNIT0004988553Corp 3 EUR 1000MM 3 1/31/2024 FXDIT0005067571Corp 3 EUR 1350MM .034 1/31/2018 FRNIT0005067589Corp 3 EUR 900MM .034 10/31/2017 FRNIT0005090813Corp 3 EUR 1000MM .75 4/30/2025 FXDIT0004587363Corp 4 EUR 1400MM 3.625 3/31/2017 FXDIT0004701568Corp 4 EUR 1550MM 4.75 3/31/2016 FXDIT0005090516Corp 4 EUR 1000MM .75 3/31/2022 FXD***M = Thousand; MM = Million; MMM = Billion1 = ISPIM; 2 = UCGIM, 3 = UBIIM; 4 = BPIM
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Table: MarkitTM iTraxx S22 S23 S24
Company Name S22 - Start Date 09/22/14 Mty Date 12/20/19 Company Name S23 - Start Date 03/20/15 Mty Date 06/20/20 Company Name S24 - Start Date 09/21/15 Mty Date 12/20/20
Aegon NV Aegon NV Aegon NVAllianz SE Allianz SE Allianz SE
Assicurazioni Generali SpA Assicurazioni Generali SpA Assicurazioni Generali SpAAviva PLC Aviva PLC Aviva PLCAXA SA AXA SA AXA SA
Banco Bilbao Vizcaya Argentaria SA Banco Bilbao Vizcaya Argentaria SA Banco Bilbao Vizcaya Argentaria SABanco Santander SA Banco Santander SA Banco Santander SABarclays Bank PLC Barclays Bank PLC Barclays Bank PLC
BNP Paribas SA BNP Paribas SA Bayerische LandesbankCommerzbank AG Commerzbank AG BNP Paribas SACredit Agricole SA Cooperatieve Rabobank UA Commerzbank AG
Credit Suisse Group AG Credit Agricole SA Cooperatieve Rabobank UADeutsche Bank AG Credit Suisse Group AG Credit Agricole SAHannover Rueck SE Danske Bank A/S Credit Suisse Group AG
HSBC Bank PLC Deutsche Bank AG Danske Bank A/SING Bank NV Hannover Rueck SE Deutsche Bank AG
Intesa Sanpaolo SpA HSBC Bank PLC Hannover Rueck SELloyds Bank PLC ING Bank NV HSBC Bank PLC
Muenchener Rueckversicherungs-Gesellschaft AG in Muenchen Intesa Sanpaolo SpA ING Bank NVSociete Generale SA Lloyds Bank PLC Intesa Sanpaolo SpA
Standard Chartered Bank Mediobanca SpA Lloyds Bank PLCRoyal Bank of Scotland PLC/The Muenchener Rueckversicherungs-Gesellschaft AG in Muenchen Mediobanca SpA
UBS AG Societe Generale SA Muenchener Rueckversicherungs-Gesellschaft AG in MuenchenUniCredit SpA Standard Chartered Bank Societe Generale SA
Zurich Insurance Co Ltd Svenska Handelsbanken AB Standard Chartered BankSwiss Reinsurance Co Ltd Swiss Reinsurance Co Ltd
Royal Bank of Scotland PLC/The Royal Bank of Scotland PLC/TheUBS AG UBS AG
UniCredit SpA UniCredit SpAZurich Insurance Co Ltd Zurich Insurance Co Ltd
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Prediction Error Forumla
PEiτ = 1 + 1L1
+DTraxxbnk (CDSCountry(i ,τ) − CDSCountry )2
DTraxxbnk DCDS − (Cod(Traxxbnk ,CDSCountry ))2
+DCDSCountry (Traxxbank(i ,τ) − Traxxbnk)2
DTraxx DCDS − (Cod(Traxx ,CDSCountry ))2
−2Cod(Traxxbnk ,CDSCountry )(Traxxbnk(i ,τ) − Traxxbnk)(CDSCountry(i ,τ) − CDSCountry )
DTraxx DCDS − (Cod(Traxx ,CDSCountry ))2
DTraxxbnk and DCDSCountry stand for the iTraxxbnk and CDSCountry deviance in theestimation window L1 respectively
Traxxbnk and CDSCountry stand respectively for the sample average in the estimationwindow for the iTraxxbnk and the CDScountry variable
Cod(Traxxbnk ,CDSCountry ) is the codeviance between the iTraxxbnk and CDSCountryvariable in the estimation window L1
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References I
CAMPBELL, J. Y., LO, A. W.-C., and MACKINLAY, A. C. (1997).The econometrics of financial markets, volume 2.princeton University press Princeton, NJ.
ESRB (2015).European Systemic Risk Board Report on the Regulatory Treatment ofSovereign Exposures.
FAMA, E. F., FISHER, L., JENSEN, M. C., and ROLL, R. (1969).The adjustment of stock prices to new information.International economic review, 10(1):1–21.
KOLARI, J. W. and PYNNONEN, S. (2010).Event study testing with cross-sectional correlation of abnormal returns.Review of Financial Studies, 23(11):3996–4025.
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References II
LA FERRARA, E. and GUIDOLIN, M. (2004).Diamonds are forever, wars are not: Is conflict bad for private firms?
MACKINLAY, A. C. (1987).On multivariate tests of the capm.Journal of Financial Economics, 18(2):341–371.
MACKINLAY, C. A. (1997).Event studies in economics and finance.Journal of economic literature, 35(1):13–39.
PATELL, J. M. (1976).Corporate forecasts of earnings per share and stock price behavior: Empiricaltest.Journal of accounting research, pages 246–276.
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References III
PYNNONEN, S. (2005).On regression based event study.Acta Wasaensia, 143:327–354.
SANTIAGO, F. D. L., CARLOS, P., VICTORIA, S., and JAVIER, G. (2015).Eu loss-absorbing capacity requirement: Final mrel guidlines.BBVA Research.
SCHWERT, G. W. (1981).Using financial data to measure effects of regulation.The Journal of Law & Economics, 24(1):121–158.
THEIL, H. (1971).Principles of econometrics.
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