Are Banks' Below Par Own Debt Repurchases a Cause for Prudential Concern?
| Autor: | Annelies Renders, Martien Lubberink |
|---|---|
| Přispěvatelé: | Accounting & Information Management, RS: GSBE Theme Culture, Ethics & Leadership |
| Jazyk: | angličtina |
| Rok vydání: | 2020 |
| Předmět: |
Subordinated debt
050208 finance Leverage (finance) media_common.quotation_subject 05 social sciences Economics Econometrics and Finance (miscellaneous) banking Financial system 050201 accounting Tier 1 capital prudential filters fair value option Basel III liability management Accounting Debt Fair value 0502 economics and business Goodwill Capital requirement Business Finance media_common subordinated debt |
| Zdroj: | Journal of Accounting, Auditing & Finance, 35(3), 501-529. Greenwood Publishing Group Inc. |
| ISSN: | 0148-558X |
| Popis: | 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 €9.1bn 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. |
| Databáze: | OpenAIRE |
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