Measures of the Riskiness of Banking Organizations: Subordinated Debt Yields, Risk-Based Capital, and Examination Ratings

Posted: 16 Jan 2002

See all articles by Douglas D. Evanoff

Douglas D. Evanoff

Federal Reserve Bank of Chicago

Larry D. Wall

Federal Reserve Bank of Atlanta - Research Department

Multiple version iconThere are 2 versions of this paper

Abstract

Recently there have been a number of recommendations to increase the role of subordinated debt (SND) in satisfying bank capital requirements as a preferred means to discipline the risk-taking behavior of systemically important banks. One such proposal recommended using SND yield spreads as the triggers for mandatory supervisory action under prompt corrective action guidelines introduced in U.S. banking legislation in the early 1990s. Currently such action is prompted by bank capital ratios. Evidence from previous research suggests that yield information may be a better predictor of bank problems. This paper empirically analyzes potential costs and benefits of using SND signals to trigger prompt corrective action.

Keywords: Bank regulation, subordinated debt, capital adequacy, prompt corrective action

JEL Classification: G28, G21, G14, K23

Suggested Citation

Evanoff, Douglas D. and Wall, Larry D., Measures of the Riskiness of Banking Organizations: Subordinated Debt Yields, Risk-Based Capital, and Examination Ratings. Available at SSRN: https://ssrn.com/abstract=296270

Douglas D. Evanoff

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States
312-322-5814 (Phone)

Larry D. Wall (Contact Author)

Federal Reserve Bank of Atlanta - Research Department ( email )

1000 Peachtree Street, NE
Atlanta, GA 30309-4470
United States
404-498-8937 (Phone)
404-498-8956 (Fax)

HOME PAGE: http://www.frbatlanta.org/econ_rd/bios/wall.htm

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