Document Type
Article
Publication Title
Vanderbilt Law Review En Banc
Publication Date
Fall 2017
Page Number
283
Keywords
bank equity, risk taking, regulation, securities
Disciplines
Law
Abstract
Over the course of 2016 and 2017, as Monte dei Paschi di Siena, Italy's oldest and fourth-largest bank, teetered on the brink of collapse, national regulators fretted about triggering processes designed to make it easier and less chaotic to wind down failing financial institutions.' Following the financial crisis, regulation requires banks to issue securities-in the form of both equity and bonds-intended to help absorb losses and buffer a bank's reserve of funds to pay off short-term creditors and depositors in a crisis. In the case of Monte dei Paschi, a swath of its junior bondholders were directly in line to suffer losses. As the bank neared a point of crisis, these bonds could be triggered to transform into equity, reducing the debt burden on the bank's books. Moreover, this injection of equity could also release value to help pay off senior creditors and depositors. In short, private investor capital would absorb the risk of bank collapse rather than require taxpayers to provide an expensive bail out.
Recommended Citation
Yesha Yadav,
We Need to Know Who Invests in Bank Equity, 70 Vanderbilt Law Review En Banc. 283
(2017)
Available at: https://scholarship.law.vanderbilt.edu/faculty-publications/1631