Enhancing the Credibility of Resolution

The financial crisis of 2007/08 was caused by a market failure that led to macroeconomically costly government bailouts, caused by the inherent fragility and complexity of the banking system. The resulting implicit state guarantee was anticipated by market participants and distorted risk pricing and market behavior. The aim of recent European regulatory initiatives has been to counteract this phenomenon, known as Too Big To Fail, through the financial participation of those very same market participants. This thesis examines whether the newly created bail-in instrument under the Bank Recovery and Resolution Directive (BRRD) makes a promising and credible contribution towards remedying distorted market discipline and costly bailout practice.