Abstract

Changes in the bank resolution policy in the European Union (EU) induced some changes for the EU banking system. We discuss two main implications of the implementation of the bail-in resolution tool. First, we observe a general shift in the banks' liability structure toward less expensive sources of funding (e.g., customer deposits). We also examine the reallocation of banks' bond holdings across different investors. Mis-selling of risky bank bonds was common prior to the approval of the new resolution regulation. However, after the implementation of the bail-in mechanism, bank bonds have been reallocated more towards sophisticated financial intermediaries.