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A reconsideration of the risk sensitivity of U.S. banking organization subordinated debt spreads: a sample selection approach

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Author Info
Daniel M. Covitz
Diana Hancock
Myron L. Kwast
Abstract

The authors estimate a sample selection model over three distinct regulatory "regimes" when the treatment of bank bondholders (in the event of bank failures) differed substantially. They then estimate their selection model to test the strength of bond market discipline over these three regulatory regimes, finding that bank bond spreads are positively associated with bank risk measures during all three regimes, even during the too-big-to-fail period.

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Article provided by Federal Reserve Bank of New York in its journal Economic Policy Review.

Volume (Year): (2004)
Issue (Month): Sep ()
Pages: 73-92
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Handle: RePEc:fip:fednep:y:2004:i:sep:p:73-92:n:v.10no.2

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Related research
Keywords: Bank assets ; Debt management ; Banks and banking - Ratio analysis ; Deposit insurance;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Beverly Hirtle, 2007. "Public disclosure, risk, and performance at bank holding companies," Staff Reports 293, Federal Reserve Bank of New York. [Downloadable!]
  2. Naohiko Baba & Masakazu Inada, 2007. "Price Discovery of Credit Spreads for Japanese Mega-Banks: Subordinated Bond and CDS," IMES Discussion Paper Series 07-E-06, Institute for Monetary and Economic Studies, Bank of Japan. [Downloadable!]
  3. Philip Bond & Itay Goldstein & Edward S. Prescott, 2006. "Market-based regulation and the informational content of prices," Working Paper 06-12, Federal Reserve Bank of Richmond. [Downloadable!]
  4. Daniel M. Covitz & Diana Hancock & Myron L. Kwast, 2004. "Market discipline in banking reconsidered: the roles of funding manager decisions and deposit insurance reform," Finance and Economics Discussion Series 2004-53, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  5. Donald P. Morgan & Kevin J. Stiroh, 2005. "Too big to fail after all these years," Staff Reports 220, Federal Reserve Bank of New York. [Downloadable!]
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