Subject 6: The intended and unintended consequences of covered bond issuances. Contract design and regulation implications

 

The intended and unintended consequences of covered bond issuances. Contract design and regulation implications

The recent financial crisis has acted as a catalyst for major adjustments in banks’ funding models, especially in Europe. Ever since, banks have started relying more and more on secured sources of financing, in particular by issuing covered bonds. On aspect of these instruments is the identification of the assets that creditors can hold in situations where the bank fails to meet its commitments. This process, called “asset encumbrance” reshapes the risk exposure of the bank, as it affects the overall default risk, it contributes to increase senior creditors’ credit risk (produces structural subordination) and can affect the portfolio risk. The aim of the project is to better understand the nature and the origin of these effects and their interactions, in order to help both the issuers in the contract design phase and the regulatory actions to get socially optimal levels of asset encumbrance in the banking sector.

Pre-requisite : Finance, english.

 

Host laboratory : Audencia (Nantes)

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