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Journal Article

Forbearance, subordinated debt, and the cost of capital for insured depository institutions


Abstract: Using an explicit model for subordinated debt that considers the possibility of FDIC forbearances, the authors show that forbearance 1) alters the required rate of return on subordinated debt while increasing its market value and 2) weakens the effectiveness of such debt as a source of market discipline.

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Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Economic Review

Publication Date: 1992

Volume: 28

Issue: Q III

Pages: 16-26