Agency costs of bail-in

This paper investigates two elements of agency costs, namely the wealth-transfer and the value destruction problems, associated with the equity-conversion and writedown CoCo bonds. By focusing on the costs as those stemming from the deviation from absolute priority rule (DAPR), we derive the expressions for the CoCo bonds and show that both agency costs are aggravated under these structures. We demonstrate this by studying the case of Monte Di Paschi bail-out in 2010. We argue that the replacement of government bailout by bail-in is akin to replacing moral hazard for agency costs, and that by encouraging bail-in structures the regulator prioritises the reduction of the former while ignoring the aggravation of the latter

Optimal volatility, covenants and cost of capital under Basel III bail-in

This paper investigates three consequences of the new financial regulation: the agency costs, the monitoring costs and the effect on banks’ cost of capital. For the first, the shareholders’ behaviour is analysed as a trade-off between the value of the bank and its volatility by using an indifference curve model of the bank’s choice of optimal risk. While the first-best optimal risk maximises the value of the bank, the shareholders select suboptimally high risks under bail-in structures. This leads to both the wealth transfer and the value destruction agency costs. For the second, as a result of these consequences of the DAPR (Deviation from the Absolute Priority Rule) the bondholders are forced to closely monitor the bank behaviour. Requiring higher rate of return for higher risk, reflecting the costs of monitoring, is shown to alleviate the agency problems. Different types of covenants are proposed as an efficient way of implementing this solution. For the third, the impact of the new bail-in structure and the monitoring costs on the WACC of 16 largest European banks is estimated, and is shown to increase the cost of capital by between 75% and 110%

Indifference curve analysis of banks' risk-taking and CoCo Covenants

This paper investigates two repercussions of the contingent convertible (CoCo) bond bail-in framework: the agency costs and the resulting monitoring costs. For the first, the equityholders' behaviour is analysed as a trade-off between the value of the bank and the risk taken by using an indifference curve model. While the first-best optimal risk maximises the value of the bank, the equityholders select sub-optimally high risk level under bail-in structures. This leads to both wealth transfer and value destruction agency costs. For the second, the increased required rate of return by bondholders that reflects the cost of monitoring is shown to act as a "Pigouvian tax" on the equityholders' behaviour. Utilising this, we propose different types of covenants within CoCo bonds indenture as a solution to the sub-optimal risk-taking behaviour

Contingent Convertible Bonds: payoff structures and incentive effects

This paper analyses two aspects of contingent convertible (Coco) bonds. First, we establish and compare in detail the payoffs to equity and bond holders in different bail-out/in schemes, namely no bail-out/in, government bail-out, equity-conversion Coco bail-in and write-off Coco bail-in. This reveals that the equityholders progressively gain extra incremental option positions at each step of the bail-out/in schemes in the order listed. Second, we investigate two types of agency costs: the wealth-transfer problem and the value destruction problem. We show that these are aggravated under equity-conversion Coco bail-ins, and are even higher under write-off Coco bail-in for larger asset values, suggesting inherent structural incentive issues associated with these bonds

Laboratory Investigation of Skid Resistance for Steel Slag Utilization as Chip Seal

Slag as waste material of steel-making process has similar characteristics with aggregate that has been widely used in pavement construction. The use of slag as chip seal aggregate to provide skid resistance needs to be analyzed. In this laboratory study, the chip seal samples are made using steel slag and natural aggregate. The bonding materials used are asphalt and epoxy resin. Skid resistance tests for all chip seal samples and also hot rolled sheet pavement without chip seal application are performed using the Portable British Pendulum Tester. The results show the variations of chip seal aggregate weight are inconsistent. The natural aggregate used as chip seal material could produce high skid resistance value of 10.3% higher than that using steel slag. Also the skid resistance of chip seal with the ALD 3 mm are not significantly different with that of ALD 6 mm. Similar results occur on the skid resistance of chip seals using epoxy resin and asphalt

Índice de Gobernabilidad y Políticas Públicas en Gestión del Riesgo de Desastres (iGOPP) : documento técnico principal

Per a l'enfocament de Governabilitat s'ha comptat amb l'assessoria de Xavier Ballart, Universitat Autònoma de Barcelona. Institut de Govern i Polítiques Públique

Standalone vertex finding in the ATLAS muon spectrometer

A dedicated reconstruction algorithm to find decay vertices in the ATLAS muon spectrometer is presented. The algorithm searches the region just upstream of or inside the muon spectrometer volume for multi-particle vertices that originate from the decay of particles with long decay paths. The performance of the algorithm is evaluated using both a sample of simulated Higgs boson events, in which the Higgs boson decays to long-lived neutral particles that in turn decay to bbar b final states, and pp collision data at √s = 7 TeV collected with the ATLAS detector at the LHC during 2011

Measurements of Higgs boson production and couplings in diboson final states with the ATLAS detector at the LHC

Measurements are presented of production properties and couplings of the recently discovered Higgs boson using the decays into boson pairs, H →γ γ, H → Z Z∗ →4l and H →W W∗ →lνlν. The results are based on the complete pp collision data sample recorded by the ATLAS experiment at the CERN Large Hadron Collider at centre-of-mass energies of √s = 7 TeV and √s = 8 TeV, corresponding to an integrated luminosity of about 25 fb−1. Evidence for Higgs boson production through vector-boson fusion is reported. Results of combined fits probing Higgs boson couplings to fermions and bosons, as well as anomalous contributions to loop-induced production and decay modes, are presented. All measurements are consistent with expectations for the Standard Model Higgs boson

Measurement of the polarisation of W bosons produced with large transverse momentum in pp collisions at sqrt(s) = 7 TeV with the ATLAS experiment

This paper describes an analysis of the angular distribution of W->enu and W->munu decays, using data from pp collisions at sqrt(s) = 7 TeV recorded with the ATLAS detector at the LHC in 2010, corresponding to an integrated luminosity of about 35 pb^-1. Using the decay lepton transverse momentum and the missing transverse energy, the W decay angular distribution projected onto the transverse plane is obtained and analysed in terms of helicity fractions f0, fL and fR over two ranges of W transverse momentum (ptw): 35 < ptw < 50 GeV and ptw > 50 GeV. Good agreement is found with theoretical predictions. For ptw > 50 GeV, the values of f0 and fL-fR, averaged over charge and lepton flavour, are measured to be : f0 = 0.127 +/- 0.030 +/- 0.108 and fL-fR = 0.252 +/- 0.017 +/- 0.030, where the first uncertainties are statistical, and the second include all systematic effects.Comment: 19 pages plus author list (34 pages total), 9 figures, 11 tables, revised author list, matches European Journal of Physics C versio