Using Subordinated Debt to Monitor Bank Holding Companies: Is it Feasible?
51 Pages Posted: 4 May 2001
Date Written: April 2001
Abstract
Much research is needed to implement a supervisory surveillance system for banking organizations that relies on subordinated debt and other market data. This paper is germane to that task. We find subordinated debt spreads are most consistent across data sources for the most liquid bonds (i.e., those of relatively large issuance size, relatively young age, issued by relatively large firms) traded in a relatively robust overall bond market. We also find there is a high degree of concordance in rankings of firms by their minimum spreads across bonds with especially strong agreement about which large firms are in the tails of the spread distribution at each point in time. Our time-series results support and provide guidance for the use of subordinated debt spreads in supervisory monitoring, support the need for careful judgment when interpreting such spreads, highlight difficulties with currently available data sources, and motivate the need for further research.
Keywords: Bonds, subordinated debt, bank holding companies, monitoring, data quality
JEL Classification: G21, G28
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Comparing Market and Supervisory Assessments of Bank Performance: Who Knows What When?
By Allen N. Berger, Sally M. Davies, ...
-
Equity and Bond Market Signals as Leading Indicators of Bank Fragility
By Reint Gropp, Jukka M. Vesala, ...
-
Equity and Bond Market Signals as Leading Indicators of Bank Fragility
By Reint Gropp, Jukka M. Vesala, ...
-
Market Discipline in the Governance of U.S. Bank Holding Companies: Monitoring vs. Influencing
By Robert R. Bliss and Mark J. Flannery
-
Subordinated Debt and Bank Capital Reform
By Douglas D. Evanoff and Larry D. Wall
-
Sub-Debt Yield Spreads as Bank Risk Measures
By Douglas D. Evanoff and Larry D. Wall
-
Can Emerging Market Bank Regulators Establish Credible Discipline? The Case of Argentina, 1992-1999
-
Predicting Bank Failures: A Comparison of On- and Off-Site Monitoring Systems
By Rebel A. Cole and Jeffery Gunther
-
The Information Content of Bank Exam Ratings and Subordinated Debt Prices
By Robert Deyoung, Mark J. Flannery, ...