The disciplinary effect of subordinated debt on bank risk taking

Nguyen, Tu

doi:10.1016/j.jempfin.2013.05.005

Cited by 31 publications

(36 citation statements)

References 68 publications

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“…In contrast, Nguyen (2013) analyzed the disciplinary effect of issuing subordinated debt on the undesirable forms of risk-taking in the period 2002 -2008. The author obtained evidence that the issuing of subordinated debt had an attenuating effect on the risk-taking of banks owing to the effects of discipline on the market.…”

Section: Positive or Negative Factors Regarding The Issuance Of Idecs From The Standpoint Of The Shareholdersmentioning

confidence: 99%

Market Reaction to the Issuance of Capital Instruments by Brazilian Banks

Zanon¹,

Dantas²

2020

BBR

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Banks are allowed to employ debt instruments in order to meet the minimum requirements of capital, as long as they comply with the subordination agreements as determined by the Basel Accords. This paper takes account of the effective powers of these instruments, viewed from the standpoint of the investors, and seeks to assess their impact on the return on investments in the shares of the issuing banks within Brazil's capital markets. The article is, to a large extent, based on the research findings of Ammann et al (2017). The results of the empirical tests -which were conducted by means of event studies that involved issuing 30 instruments during the period 12/2008 -09/2017 -suggest that the issuances or announcements of these instruments had an adverse effect on the stock market value of the issuing banks. In addition, evidence was obtained that the market is unable to forecast the effects of these instruments before they take place. This paper seeks to contribute to the current literature on prudential regulations for banking and it hopes to assist banks in making decisions about capitalization.

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Section: Positive or Negative Factors Regarding The Issuance Of Idecs From The Standpoint Of The Shareholdersmentioning

confidence: 99%

Market Reaction to the Issuance of Capital Instruments by Brazilian Banks

Zanon¹,

Dantas²

2020

BBR

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“…Using an international sample of banks, Demirguc‐Kunt and Huizinga ( ) find evidence of an implicit guarantee for large banks (the so‐called TBTF effect) in the senior CDS market. In addition, Nguyen ( ) demonstrates that subordinated debt is the best choice for providing increased market discipline because of its junior status, whereas other uninsured debt (including senior unsecured debt) does not appear to be as effective. Furthermore, based on comprehensive data on the Canadian banking sector, Beyhaghi et al ( ) also support the TBTF argument in the senior unsecured debt sector and argue that market discipline exists for subordinated debt but not for senior debt.…”

Section: Related Literaturementioning

confidence: 99%

Market‐based estimates of implicit government guarantees in European financial institutions

Zhao

2017

Euro Fin Management

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I exploit the price differential of credit default swap (CDS) contracts written on debts with different levels of seniority to measure the implicit government guarantees enjoyed by European financial institutions from 2005 to 2013. I determine that the aggregate guarantee increased substantially during the recent financial crises and peaked at an average of 89 bps in 2011. My analysis suggests that the extent of implicit support depends on the type of financial institutions and there exists a eurozone effect. Further investigation of feedback relationship shows that the guarantee implicitly offered by a government positively ‘Granger causes’ the sovereign's default risk.

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“…Using an international sample of banks, Demirguc-Kunt and Huizinga (2013) find evidence of an implicit guarantee for large banks (the so called "too-big-to-fail" effect) in the senior CDS market. In addition, Nguyen (2013) demonstrates that subordinated debt is the best choice for providing increased market discipline due to its junior status, while other uninsured debt (including senior unsecured debt) does not appear to be as effective. 6 The conclusion that yields of subordinated debt were insensitive to banks' riskiness in the early 1980s may not at all indicate the presence of implicit guarantees, which blinded investors' eyes.…”

Section: Related Literaturementioning

confidence: 99%

Implicit Government Guarantees in European Financial Institutions

Zhao

2015

SSRN Journal

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The disciplinary effect of subordinated debt on bank risk taking

Cited by 31 publications

References 68 publications

Market Reaction to the Issuance of Capital Instruments by Brazilian Banks

Market Reaction to the Issuance of Capital Instruments by Brazilian Banks

Market‐based estimates of implicit government guarantees in European financial institutions

Implicit Government Guarantees in European Financial Institutions

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