The Role of Subordinated Debt in Market Discipline: The Case of Emerging Markets

Karacadag, Cem; Shrivastava, Animesh

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The Role of Subordinated Debt in Market Discipline: The Case of Emerging Markets

IMF Working Paper No. 00/215

31 Pages Posted: 14 Feb 2006

See all articles by Cem Karacadag

Cem Karacadag

International Monetary Fund (IMF) - Monetary and Exchange Affairs Department

Animesh Shrivastava

University of Reading - Department of Economics

There are 2 versions of this paper

Date Written: December 2000

Abstract

This paper evaluates the potential role of mandatory subordinated debt (MSD) in enhancing market discipline in emerging markets. The conceptual merits and key preconditions of MSD are first reviewed. Then, the extent to which emerging markets satisfy these preconditions - among them the monitorability of bank assets, the presence of nonbank financial investors, and liquid and clean capital markets - are evaluated. We find that emerging markets do not satisfy the preconditions for the successful implementation of a MSD policy. Therefore, efforts to enhance market discipline should first focus on satisfying these preconditions and improving the overall incentive environment and market infrastructure.

Keywords: Subordinated debt, capital standards, banking regulation

JEL Classification: G21

Suggested Citation: Suggested Citation

Karacadag, Cem and Shrivastava, Animesh, The Role of Subordinated Debt in Market Discipline: The Case of Emerging Markets (December 2000). IMF Working Paper No. 00/215, Available at SSRN: https://ssrn.com/abstract=880894