The Quality of Private Monitoring in European Banking: Completing the Picture

Adrian Pop () and Diana Pop ()
Additional contact information
Adrian Pop: LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - IEMN-IAE Nantes - Institut d'Économie et de Management de Nantes - Institut d'Administration des Entreprises - Nantes - UN - Université de Nantes
Diana Pop: GRANEM - Groupe de Recherche Angevin en Economie et Management - UA - Université d'Angers - AGROCAMPUS OUEST - Institut National de l'Horticulture et du Paysage

Working Papers from HAL

Abstract: The philosophy behind the debt market discipline approach to banking regulation presumes that the pricing of bank debt securities, if accurate, conveys reliable signals to supervisors. In this paper, we take a critical look at the feasibility of such an approach by exploring empirically the possibility that markets may price differently the risk profile of bank issuers along the empirical distribution of credit spread. The paper proposes a quantile regression framework to draw novel inferences about the functioning of market discipline and the quality of private monitoring in European banking and provides a more comprehensive picture of the distribution of spreads conditional on its main explanatory factors. We find that the spread-risk relationship is systematically steeper and more significant at the "right-tail" of the conditional distribution of credit spread, which suggests that the market is somewhat tougher with "high-risk" banks.

Keywords: Banking regulation and supervision; Market discipline; Subordinated debt; Private monitoring; Credit spreads; Quantile regression (search for similar items in EconPapers)
Date: 2012-03-14
New Economics Papers: this item is included in nep-ban, nep-cba and nep-eur
Note: View the original document on HAL open archive server: https://hal.science/hal-00678943v1
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://hal.science/hal-00678943v1/document (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-00678943

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().