Abstract

http://ssrn.com/abstract=288567
 
 

Citations



 


 



Sub-Debt Yield Spreads as Bank Risk Measures


Douglas D. Evanoff


Federal Reserve Bank of Chicago

Larry D. Wall


Federal Reserve Bank of Atlanta - Research Department


Journal of Financial Services Research, Forthcoming

Abstract:     
Several recent studies have recommended greater reliance on subordinated debt as a tool to discipline bank risk taking. Some of these proposals recommend using sub-debt yield spreads as triggers for supervisory discipline under prompt corrective action (PCA). Currently such action is prompted by capital adequacy measures. This paper provides the first empirical analysis of the relative accuracy of various capital ratios and sub-debt spreads in predicting bank condition, measured as subsequent CAMEL or BOPEC ratings. The results suggest that some of the capital ratios, including the summary measure used to trigger PCA, have almost no predictive power. Sub-debt yield spreads performed slightly better than the best capital measure, the Tier-1 leverage ratio, albeit the difference is not significant. The performance of sub-debt yields satisfies an important prerequisite for using sub-debt as a PCA trigger. However, the prediction errors are relatively high and further work to refine the measures would be desirable.

Keywords: bank regulation, subordinated debt, capital adequacy, prompt corrective action

JEL Classification: G28, G21, G14, K23

Accepted Paper Series


Not Available For Download

Date posted: November 5, 2001  

Suggested Citation

Evanoff, Douglas D. and Wall, Larry D., Sub-Debt Yield Spreads as Bank Risk Measures. Journal of Financial Services Research, Forthcoming. Available at SSRN: http://ssrn.com/abstract=288567

Contact Information

Douglas D. Evanoff
Federal Reserve Bank of Chicago ( email )
230 South LaSalle Street
Chicago, IL 60604
United States
312-322-5814 (Phone)
Larry D. Wall (Contact Author)
Federal Reserve Bank of Atlanta - Research Department ( email )
1000 Peachtree Street, NE
Atlanta, GA 30309-4470
United States
404-498-8937 (Phone)
404-498-8956 (Fax)
HOME PAGE: http://www.frbatlanta.org/econ_rd/bios/wall.htm
Feedback to SSRN


Paper statistics
Abstract Views: 457

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo1 in 0.250 seconds