دانلود رایگان مقاله انگلیسی بازخرید تعادل بدهی بانک ها: انگیزه ای برای نگرانی احتیاطی - Sage 2018

Abstract

In the lead-up to the implementation of Basel III, European banks repurchased debt securities that traded below par. Banks engaged in these Liability Management Exercises (LMEs) to realize a fair value gain that prudential rules exclude from regulatory capital calculations. The LMEs enabled banks to augment Core Tier 1 capital, given that alternative methods to increase capital ratios were not feasible in practice. Using data of 720 European LMEs conducted between April 2009 and December 2013, we show that poorly capitalized banks repurchased securities and lost about e9.1bn in premiums to compensate their holders. Banks also repurchased the most loss-absorbing securities, for which they paid the highest premiums. These premiums increase with leverage and in times of stress. Hence debt repurchases are a cause for prudential concern.

Conclusion

In the lead-up to the implementation of Basel III and as a response to the higher anticipated capital requirements, European banks repurchased debt instruments which traded at a discount. The majority of these LMEs involved hybrid instruments that counted as regulatory bank capital. These instruments were bought back, after which the gain, net of the buyback premium, contributed to the formation of additional Core Tier 1 capital.

Using highly detailed data, we investigated the determinants of 720 European LMEs from April 2009 to December 2013 as well as the effect on banks’ solvency and liquidity. We also examined the determinants of the buyback premium, a measure of the inefficiency of the LME, and the types of instruments that were bought back. Our results show that the likelihood of an LME decreases with a bank’s solvency. We also find that the buyback premium increases with (a) the loss-absorbing capacity of capital instruments, (b) economywide financial stress, and (c) leverage. The buyback premiums are at the expense of banks’ liquidity and overall regulatory capital.

Altogether, these results indicate that the prevailing market conditions in combination with regulatory preferences that discouraged derisking and excluded unrealized fair value gains and losses arising from changes in own credit standing from the calculation of regulatory capital resulted in significant unintended consequences. Namely, our results show that the most loss-absorbing instruments are the most attractive buyback targets. Yet regulation allows buybacks of the most loss-absorbing instruments only if a bank is sufficiently solvent. But, our results show that the least solvent banks engaged in LMEs. Our results also show that the incentive to engage in an LME increases in times of economic stress. The examination of the buyback premium shows that LMEs not only affect solvency (specifically: the total capital ratio) but also liquidity—this at a time of increased regulatory focus on cash conservation, for example, the announced regulation of the Liquidity Coverage Ratio and Net Stable Funding Ratio and calls for limiting distributions to investors (EBA, 2017).