Measures of the Riskiness of Banking Organizations: Subordinated Debt Yields, Risk-Based Capital, and Examination Ratings
FRB Atlanta Working Paper No. 2001-25a
35 Pages Posted: 8 Dec 2001
There are 2 versions of this paper
Measures of the Riskiness of Banking Organizations: Subordinated Debt Yields, Risk-Based Capital, and Examination Ratings
Date Written: January 2002
Abstract
Recently there have been a number of recommendations to increase the role of subordinated debt (SND) in satisfying bank capital requirements as a preferred means to discipline the risk-taking behavior of systemically important banks. One such proposal recommended using SND yield spreads as the triggers for mandatory supervisory action under prompt corrective action guidelines introduced in U.S. banking legislation in the early 1990s. Currently such action is prompted by bank capital ratios. Evidence from previous research suggests that yield information may be a better predictor of bank problems. This paper empirically analyzes potential costs and benefits of using SND signals to trigger prompt corrective action.
Keywords: Bank regulation, subordinated debt, capital adequacy, prompt corrective action
JEL Classification: G28, G21, G14, K23
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, ...