Presentation - Thesis

28
The Senior Unsecured Debt of European Banks How Unsecured after the Implementation of the Bank Recovery and Resolution Directive? Valentino Di Rienzo Supervised by: Prof. Andrea Cesare Resti Bocconi University 7 th April 2016

Transcript of Presentation - Thesis

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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