Who Should Hold Bail-Inable Debt and How can Regulators Police Holding Restrictions Effectively?

Who should hold the keys to your DNA?

Equity versus Bail-in Debt in Banking: An Agency Perspective∗

We examine the optimal size and composition of banks’ total loss absorbing capacity (TLAC). Optimal size is driven by the trade-off between providing liquidity services through deposits and minimizing deadweight default costs. Optimal composition (equity vs. bail-in debt) is driven by the relative importance of two incentive problems: risk shifting (mitigated by equity) and private benefit taki...

Convertible bonds and bank risk-taking

We study how contingent capital that converts in equity ahead of default affects bank risk-shifting. Going concern conversion restores equity value in highly levered states, thus reducing heightened risk incentives. In contrast, conversion at default for traditional bail-inable debt has no effect on endogenous risk. The main beneficial effect comes from reduced leverage at conversion. In contra...

How the U.S. Treasury Should Auction Its Debt

The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.

How can optimal skill mix be effectively implemented and why?

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