Determinants of Subordinated Debt Issuance by Japanese Regional Banks

Naohiko Baba, Masakazu Inada and Yasuo Maeda
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Naohiko Baba: Senior Economist and Director, Financial Markets Department, Bank of Japan. (E-mail: naohiko.baba@boj.or.jp)
Masakazu Inada: Institute for Monetary and Economic Studies, Bank of Japan. (E-mail: masakazu.inada@boj.or.jp)
Yasuo Maeda: Professor, Faculty of Economics, Keio University . (E-mail: maeda@econ.keio.ac.jp)

No 07-E-03, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: This paper empirically investigates the determinants of subordinated debt issuance by Japanese regional banks during the period 2000-2005 using a probit model. The empirical results suggest the following: (i) Throughout the period, Japanese regional banks with a lower capital/asset ratio have a higher incentive to issue subordinated debts because they are counted as Tier 2 capital under the Basel Accord. (ii) During the period of instability in the Japanese banking system ( 2000-2003), investors tended to intensively use financial variables such as the non-performing loan ratio, ROA, and total deposits outstanding to screen good banks for their investments in the subordinated debts. (iii) During the period after the banking system regained stability (2004-2005), investors tended to pay less attention to the above variables due mainly to the mitigated default risk of these banks.

JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2007-03
New Economics Papers: this item is included in nep-ban
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