Subordinated Debt, Market Discipline, and Regulatory Reform[Dette subordonnée, discipline de marché et réforme réglementaire]

Sub-debt, market discipline, and regulatory reform The proposals regarding the reform of banking regulation equally include elements of market discipline that are naturally added to the traditional instruments. More precisely, a policy by which some large banks are forced to regularly issue a certain minimum amount of subordinated and not guaranteed debt can prove itself effective in mitigating some problems generated by moral hazard and regulatory forbearance in banking. These proposals aim to create a distinct class of investors whose incentives can be aligned with those of the bank regulators, that is monitoring, analyzing, and finally disciplining the risky behaviors of bank institutions. In this way, the tasks formally accomplished only by the regulators would now be shared with the private actors of the market. The goal of this article is to study the relevance of the mandatory subordinated debt policy, the ways of integrating it in the actual stare of the art of bank regulation and its optimal design. JEL classifications : G21, G28