Funding advantage and market discipline in the Canadian banking sector

Mehdi Beyhaghi, D’Souza, Chris and Gordon S. Roberts
Authors registered in the RePEc Author Service: Chris D'Souza

Journal of Banking & Finance, 2014, vol. 48, issue C, 396-410

Abstract: We employ a comprehensive data set and a variety of methods to provide evidence on the magnitude of large banks’ funding advantage in Canada in addition to the extent to which market discipline exists across different securities issued by the Canadian banks. The banking sector in Canada provides a unique setting in which to examine market discipline along with the prospects of proposed reforms because Canada has no history of government bailouts, and an implicit government guarantee has been in effect consistently since the 1920s. We find that large banks have a funding advantage over small banks after controlling for bank-specific and market risk factors. Large banks on average pay 80 basis points and 70 basis points less, respectively, on their deposits and subordinated debt. Working with hand-collected market data on debt issues by large banks, we also find that market discipline exists for subordinated debt and not for senior debt.

Keywords: Bail-in; Contingent capital; Market discipline; Funding advantage; Subordinated debt; Financial regulation; Bank resolution (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 G32 G33 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

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Related works:
Working Paper: Funding Advantage and Market Discipline in the Canadian Banking Sector (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:48:y:2014:i:c:p:396-410

DOI: 10.1016/j.jbankfin.2013.08.006

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