Abstract

The resolution of recent bank distresses has been executed through both bail-out and bail-in mechanisms. Market reaction to the use of these resolution mechanisms is analysed with an event study approach, showing that bail-in events generated worse reactions relative to bail-out. Overall, with a second-stage regression analysis of Cumulative Abnormal Returns, findings show that negative returns due to bail-in events are smaller in magnitude after the approval of the BRRD regulation. Furthermore, bank distress cases in troubled countries are more expected than in strong countries and contagion effects appear stronger in the Eurozone rather than in the rest of Europe.