اثر انضباطی بدهی های فرعی بر ریسک پذیری بانک

Using data for publicly listed commercial banks and bank holding companies around the world, I investigate the disciplinary effect of subordinated debt on bank risk taking in the period 2002–2008. In addition, I examine whether this effect depends on national bank regulations and legal and institutional conditions. I provide evidence that subordinated debt has a mitigating effect on bank risk taking. Further, the results suggest a threshold level of national bank regulations and economic development above which subordinated debt mitigates risk taking. Overall, the evidence supports the efficacy of proposals calling for increased use of subordinated debt in banking firms.

In this study, I examine whether subordinated debt mitigates bank risk taking and whether national bank regulations and economic development affect the relation between subordinated debt and bank risk taking. My study is motivated by policy considerations. It is evidenced from recent financial turmoil that excessive risk taking behavior of individual banks could expose the whole banking and financial system to systemic risk. Banking crises, in turn, have been shown by Dell'Ariccia et al. (2008), and Reinhart and Rogoff (2008) to have independent negative effects on the real economy. Hence, there is an increased call for more market discipline on banking firms. Subordinated debt has been widely proposed as a means to achieve this end.

In this study, I investigate (1) whether having subordinated debt in place mitigates bank risk taking and (2) whether national bank regulations and economic development affect the relation between subordinated debt and bank risk taking. Answers to these questions have important policy implications in view of growing concern among policy makers about banking firms' excessive risk taking and increasing interest in using subordinated debt as an instrument to augment market discipline of banking firms. Using a variety of robustness tests, my study provides evidence supporting the view that, under certain conditions, subordinated debt has a mitigating effect on bank risk taking. The effect is observed in both the crisis and non-crisis periods. Moreover, the risk mitigating effect appears to be a distinctive feature of subordinated debt as a type of bank obligations. The evidence thus supports proposals calling for increased use of subordinated debt in banking firms. Further, the results are consistent with theories that the mitigating impact of subordinated debt on bank risk taking depends crucially on national bank regulations and legal and institutional conditions. Therefore, if a policy that requires subordinated debt as a part of banking firms' regulatory capital is to be implemented, it should be carried out in conjunction with creating necessary institutional conditions for subordinated debt to exert the intended effect on bank risk taking.