The Macroeconomic Effectiveness of Bank Bail-ins

Katz, M. & van der Kwaak, C., 2018, Groningen: University of Groningen, SOM research school, 42 p. (SOM Research Reports; no. 2018009-EEF).

Research output: Working paperAcademic

Copy link to clipboard


We examine the macroeconomic implications of bailing-in banks’ creditors after a systemic financial crisis, whereby bank debt is partially written off. We do so within a RBC model that features an endogenous leverage constraint which limits the size of banks’ balance sheets by the amount of bank net worth. Our simulations show that an unanticipated bail-in effectively ameliorates macroeconomic conditions as more net worth relaxes leverage constraints, which
allows an expansion of investment. In contrast, an anticipated bail-in will be priced in ex-ante by bank creditors, thereby transferring the bail-in gains from banks to creditors. Therefore the intervention has zero impact on the macroeconomy relative to the no bail-in case. The effectiveness of the bail-in policy can be restored by implementing a temporary tax on debt outflows once creditors start to anticipate a bail-in.
Original languageEnglish
Place of PublicationGroningen
PublisherUniversity of Groningen, SOM research school
Number of pages42
Publication statusPublished - 2018

Publication series

NameSOM Research Reports
PublisherSOM Research School

Download statistics

No data available

ID: 62681017