Subordinated debt, uninsured deposits, and market discipline: evidence from U.S. bank holding companies

Fatma Cebenoyan () and A. Sinan Cebenoyan ()
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A. Sinan Cebenoyan: Hofstra University

No 421, Economics Working Paper Archive at Hunter College from Hunter College Department of Economics

Abstract: We investigate market discipline in banking through uninsured depositors and subordinated debt holders, using U.S. bank holding companies data from 1996 to 2005. We test to see both the monitoring and influencing aspects of market discipline. Although our results overall support the presence of monitoring through uninsured deposits, the evidence of influencing is mixed at best. We find some disciplining effect of changes in uninsured deposit levels and prices on bank fundamentals. We find no evidence of any disciplinary influences by subordinated debt holders. JEL Classification: G21, G28, G32 Key Words: Subordinated debt; Uninsured deposits; Market discipline; Banks.

Date: 2008
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