Market Discipline and Banking Supervision: The Role of Subordinated Debt
type: Dataset
description: One of the aims of mandatory subordinated debt is to enhance both direct and indirect market discipline. Indeed, on the one hand, holding subordinated debt can affect banks' behaviour by changing their funding costs and, on the other hand, the rate of return of subordinated debt can be used by supervisors as a signal of their riskiness. In this paper, we analyse how subordinated debt may affect both bank riskiness and the effectiveness of bank supervision. We take into account the ability and incentives of subordinated debt holders to exercise market discipline. We show that requiring banks to hold subordinated debt should reduce bank risk and allow a better allocation of supervisory ressources. To do so, two criteria must be fulfilled: subordinated debt holders should have access to sufficient information about bank riskiness but they should not benefit from any kind of insurance.
landing page: https://unilim.hal.science/hal-00916729
keyword: infoeu-reposemanticspreprint
keyword: preprints-working-papers-
keyword: shsecohumanities-and-social-scienceseconomics-and-finance
issued: 2026-05-07T20:59:40.431974
modified: 2026-05-07T20:59:40.431978
language: en
contact point: Organization
  fn: CCSD

test_moissonnage_selune
type: Agent

Market Discipline and Banking Supervision: The Role of Subordinated Debt
type: Distribution
format: HTML
access URL: https://unilim.hal.science/hal-00916729
issued: 2026-05-07T20:59:40.437256
modified: 2026-05-07T20:59:40.425157