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Getting the Most Out of a Mandatory Subordinated Debt Requirement

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Author Info

  • Rong Fan
  • Joseph Haubrich
  • Peter Ritchken
  • James Thomson

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."

(This abstract was borrowed from another version of this item.)

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File URL: http://hdl.handle.net/10.1023/B:FINA.0000003321.05468.7d
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Bibliographic Info

Article provided by Springer in its journal Journal of Financial Services Research.

Volume (Year): 24 (2003)
Issue (Month): 2 (October)
Pages: 149-179

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Handle: RePEc:kap:jfsres:v:24:y:2003:i:2:p:149-179

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Web page: http://www.springerlink.com/link.asp?id=102934

Related research

Keywords: Subordinated debt; banks; asset pricing;

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References

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Citations

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Cited by:
  1. Yehning Chen & Iftekhar Hasan, 2011. "Subordinated Debt, Market Discipline, and Bank Risk," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(6), pages 1043-1072, 09.
  2. Landskroner, Yoram & Paroush, Jacob, 2008. "Bank management and market discipline," Journal of Economics and Business, Elsevier, vol. 60(5), pages 395-414.
  3. Dilip Madan & George Pennacchi, 2003. "Introduction: Special Issue on Pricing the Risks of Deposit Insurance," Journal of Financial Services Research, Springer, vol. 24(2), pages 89-92, October.
  4. Tarr, David G., 2010. "The political, regulatory and market failures that caused the US financial crisis," Policy Research Working Paper Series 5324, The World Bank.
  5. Urs W. Birchler & Matteo Facchinetti, 2007. "Can Bank Supervisors Rely on Market Data? A Critical Assessment from a Swiss Perspective," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 143(II), pages 95-132, June.

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