Journal Article
Market discipline and subordinated debt: a review of some salient issues
Abstract: Requiring banks to issue subordinated debt is one proposal to bring market discipline to bear in aiding regulatory supervision. This article explores the frictions that produce a need for discipline (agency problems) and the mechanisms markets have evolved for dealing with these frictions. Following an examination of the rationales and assumptions underlying subordinated debt proposals, the article concludes that the case tying regulatory intervention to subordinated debt spreads is not clear-cut, and that use of all available information, including equity returns and debt yields, when available, is more likely to achieve regulatory goals.
Keywords: Debt; bank examinations; Bank supervision;
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Bibliographic Information
Provider: Federal Reserve Bank of Chicago
Part of Series: Economic Perspectives
Publication Date: 2001
Volume: 25
Issue: Q I
Pages: 24-45