آیا بدهی های فرعی می تواند ریسک پذیری بانک ها را محدود کنند؟

This paper presents a model in which requiring banks to issue a proper amount of subordinated debt can constrain their risk taking both before and after debt issuance. The main idea is that the prospect of issuing debt motivates banks to invest in safe assets before debt issuance; holding such assets then constrains their risk taking after debt issuance. The model helps understand the existing empirical findings, and offers a new testable prediction. It also suggests that: (1) regulators should set the amount of subordinated debt within a range; and (2) subordinated debt cannot entirely substitute for equity capital.

Many economists believe that requiring banks to issue some amount of subordinated debt can constrain their risk taking. The idea seems intuitive: if creditors charge riskier banks a higher interest rate, banks would think twice before taking excessive risk. This idea is referred to as direct market discipline.1 Empirical studies, however, seem to have produced conflicting findings. Some researchers examine cross-sectional data. They find that creditors indeed charge riskier banks a higher interest rate, and conclude that subordinated debt can constrain banks’ risk taking (see, e.g., Covitz et al., 2004, Morgan and Stiroh, 2001 and Sironi, 2003). Others look at time-series data. They find no change of the banks’ risk-taking behavior before and after debt issuances (see Krishnan et al., 2005).2 When does risk reduction occur, then, if subordinated debt can constrain banks’ risk taking?

The ongoing regulatory debate and the seemingly conflicting empirical findings call for a theoretical model to organize our thoughts on how subordinated debt constrains banks’ risk taking. This paper proposes such a model. At the core of the model is a simple argument: requiring banks to issue subordinated debt motivates them to invest in safe assets before debt issuance; holding such assets then constrains their risk taking after debt issuance. As a result, researchers may observe no change of the banks’ risk-taking behavior before and after debt issuance, even though subordinated debt has constrained their risk taking. Future research needs to examine whether banks reduce their risk before they issue debt. The amount of subordinated debt affects banks’ risk-taking incentives differently before and after debt issuances. Therefore, regulators should set the amount of debt within a range. We show that the bounds of this range depend on a number of factors, such as the return of the safe asset, the creditors’ ability to assess the riskiness of the bank, and their ability to use bond covenants. Because these factors differ across countries (see BCBS, 2003), our model suggests that the optimal amount of subordinated debt varies across countries.