Skip to main content

About this book

This book illustrates the importance of bonds as a funding tool available to banks. After providing the reader with an overview of the funding strategies adopted during the last ten years by European banks, the book offers a deep focus on the Italian banking industry. Notably, the authors illustrate how bonds have been a primary funding choice for Italian banks, as well as a preponderant asset in Italian households’ portfolios. Furthermore, they highlight the consequences of the adoption of the Bank Recovery and Resolution Directive (BRRD) on the yields offered by bonds of Italian banks. Finally, they conclude the volume with the illustration of very recent case studies about the application of the BRRD to some problematic banks in Italy and the related side effects generated to bank bondholders. All the analyses presented in the book are supported by the use of quantitative data.

Table of Contents


Chapter 1. The Funding Strategies of European Banks: A Discussion

The financial turmoil occurred during the last decade has heavily affected the stability of the financial systems and the European economy. Indeed, the implications generated by the crises on the real economy, along with the important regulatory changes affecting banks, have surely had an impact on the behaviour of European banks in regards to their approach towards funding. The analysis of aggregated data for the last ten years confirms the widespread view in the literature that, at least for the largest European economies, retail deposits have acquired an increasing importance in terms of main funding instrument available to the credit institutions. Indeed, banks have progressively replaced wholesale funding in favour of deposits. Moreover, our analysis highlights a decline in the volume of bonds issued by the financial institutions over the last few years.
Fabrizio Crespi, Danilo V. Mascia

Chapter 2. The Funding Strategies of Italian Banks: The Importance of Bonds

The analysis of the funding strategies adopted by the Italian banks over the last ten years confirms the trends observed for the banks operating in the major European countries. Indeed, since late 2012 deposits have been steadily growing, the weight of bonds, compared to the liabilities, has sharply declined. We find that, after a peak of 11% reached in 2011, at the end of 2016 the share of households’ wealth invested in banks’ bonds was around 3.3% only. Furthermore, until 2007 banks were used to place the majority of their bonds to households. After a steady decline throughout the years, at the end of 2016 only 25% of bank bonds appeared to be in retail investors’ portfolios. Overall, this underscores the key role played by the banks in guiding households’ investments decisions.
Fabrizio Crespi, Danilo V. Mascia

Chapter 3. The Different Types of Bonds Issued by Italian Banks: An Overview

In this Chapter we provide a description regarding the characteristics of the bonds issued by Italian banks, as well as the rules governing the issuance of debt instruments. By employing data from a comprehensive database including 9,160 outstanding bonds, we show that banks, in Italy, typically issue plain vanilla bonds. Moreover, provided that the majority of bonds are unlisted, we infer that banks in Italy have been historically used to place their debt securities to retail customers directly at their branches. Finally, using real examples of debt securities currently held by retail investors, we illustrate some innovative structures of bank bonds. The complexity behind these structures suggests that retail investors are probably unaware of the implicit risks of the bonds, because they normally tend to buy (upon trust) what the bank proposes.
Fabrizio Crespi, Danilo V. Mascia

Chapter 4. The Bail-in Effect: How the Cost of Funding Through Bonds has Changed After the Introduction of the BRRD

By employing data from a unique hand-collected dataset, in this Chapter we show that, since the adoption of the BRRD in the European Union, Italian banks—probably motivated by the need to increase the appeal of their bail-inable debt instruments—have been forced to offer higher yields (compared to the yields offered by government securities with corresponding maturities) to bondholders, with the consequence of an increase in their cost of funding. Finally, we conclude this final Chapter by offering some very recent examples about the application of the BRDD rules in Italy—which have either led to liquidation, resolution, or precautionary recapitalization cases—and the related side effects generated to bank bondholders.
Fabrizio Crespi, Danilo V Mascia


Additional information

Premium Partner

    Image Credits