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Mandatory Subordinated Debt and the Corporate Governance of Banks

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  • Paul Hamalainen

Abstract

Given current debates on the future direction of bank regulatory design, the objective of this paper is to raise awareness of a new and potentially significant tool in the corporate governance of banks. Public policy proposals to improve the nature of bank regulation through private‐sector solutions and, in particular, mandatory subordinated debt market discipline provide such an opportunity. This paper argues that apart from creating an additional class of bank stakeholder whose interests align with the risk‐reduction objectives of the regulatory authorities, a suitable mandatory subordinated debt policy (MSDP) could also provide a new and meaningful voice in the corporate governance of banks.

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  • Paul Hamalainen, 2004. "Mandatory Subordinated Debt and the Corporate Governance of Banks," Corporate Governance: An International Review, Wiley Blackwell, vol. 12(1), pages 93-106, January.
    • Handle: RePEc:bla:corgov:v:12:y:2004:i:1:p:93-106
    DOI: 10.1111/j.1467-8683.2004.00346.x
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    References listed on IDEAS

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    1. Sironi, Andrea, 2003. "Testing for Market Discipline in the European Banking Industry: Evidence from Subordinated Debt Issues," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(3), pages 443-472, June.
    2. repec:aei:rpbook:53074 is not listed on IDEAS
    3. Demirguc-Kunt, Asli & Huizinga, Harry, 1999. "Market Discipline and Financial Safety Net Design," CEPR Discussion Papers 2311, C.E.P.R. Discussion Papers.
    4. Ron J. Feldman & Mark E. Levonian, 2001. "Market data and bank supervision: the transition to practical use," The Region, Federal Reserve Bank of Minneapolis, issue Sep, pages 11-13,46-54.
    5. James R. Barth, 1991. "The Great Savings and Loan Debacle," Books, American Enterprise Institute, number 918256, September.
    6. Silas Keehn, 1989. "Banking on the balance : powers and the safety net : a proposal," Monograph, Federal Reserve Bank of Chicago, number 1989botbpatsna.
    7. Shadow Financial Regulatory Committee, 2000. "Reforming Bank Capital Regulation: A Proposal by the U.S. Shadow Financial Regulatory Committee," Books, American Enterprise Institute, number 920273, September.
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    Cited by:

    1. Menz, Klaus-Michael, 2010. "Market discipline and the evaluation of Euro financial bonds--An empirical analysis," Research in International Business and Finance, Elsevier, vol. 24(3), pages 315-328, September.
    2. Paul Hamalainen & Barry Howcroft & Maximilian Hall, 2010. "Should A Mandatory Subordinated Debt Policy Be Introduced In The United Kingdom? Evidence From The Issuance Activity Of Banks And Building Societies," Contemporary Economic Policy, Western Economic Association International, vol. 28(2), pages 240-263, April.
    3. Schürk, Daniel, 2019. "Does Subordinated Debt Discipline Banks? Empirical Evidence of Market Discipline in Europe," Junior Management Science (JUMS), Junior Management Science e. V., vol. 4(2), pages 228-240.

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