Analysis of proposals for a minimum subordinated debt requirement
نویسندگان
چکیده
Increasing market discipline has emerged as a major policy issue for banking regulators. The most prominent proposals for increasing market discipline would require banks to issue subordinated debt to the public. This paper explores the fundamental rationale behind mandatory subordinated debt proposals and their advantages and disadvantages. Our analysis indicates that a subordinated debt requirement will only modestly increase the risk sensitivity of bank costs at most large banks; however, we argue that there are substantial benefits to using subordinated debt as a market-based trigger for regulatory action. © 2002 Elsevier Science Inc. All rights reserved. JEL classification: G21; G28
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