Getting the most out of a mandatory subordinated debt requirement

RePEc Short ID: pha107
ORCID iD: 0000-0001-9138-2806

Fan, Rong; Haubrich, Joseph G.; Ritchken, Peter H.; Thomson, James B.

doi:10.26509/frbc-wp-200214

Working Paper

Getting the most out of a mandatory subordinated debt requirement

Abstract: Recent advances in asset pricing-the reduced-form approach to pricing risky debt and derivatives-are used to quantitatively evaluate several proposals for mandatory bank issue of subordinated debt. The authors find that credit spreads on both fixed- and floating-rate subordinated debt provide relatively clean signals of bank risk and are not unduly influenced by non-risk factors. Fixed-rate debt with a put is unacceptable, but making the putable debt floating resolves most problems. The authors' approach also helps to clarify several different notions of \"bank risk.\"

Keywords: Bank assets;

https://doi.org/10.26509/frbc-wp-200214