The Structure of Bank Debt Covenants

31 Pages Posted: 22 Feb 1999

See all articles by Ervin L. Black

Ervin L. Black

Steed School of Accounting

Susan E. Shevlin

Seattle University

Date Written: January 29, 1999


This paper identifies the sources of conflicts between debtholders and stockholders in commercial banks, considering the potential influence of bank deposit insurance and regulations restricting bank capital ratios, merger activities, and dividend payments. We address the means by which debt covenants are used to reduce these costly conflicts by examining a period when change in capital regulations occurred. We advance a general Substitute Regulations Hypothesis: regulations that reduce the expected costs of bondholder-stockholder conflicts substitute for costly covenants. Our results support this hypothesis. We document variation in the choice of debt covenants, and hence debt structure, and relate that variation to bank regulations.

JEL Classification: G21, G28, G32, M41

Suggested Citation

Black, Ervin L. and Shevlin, Susan E., The Structure of Bank Debt Covenants (January 29, 1999). Available at SSRN: or

Ervin L. Black (Contact Author)

Steed School of Accounting ( email )

307 W Brooks
Norman, OK 73019
United States
405-325-2401 (Phone)

Susan E. Shevlin

Seattle University ( email )

Broadway and Madison
Department of Accounting
Seattle, WA 98121-4460
United States
206-296-6006 (Phone)
206-296-2464 (Fax)

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