The Role of Subordinated Debt in Market Discipline: The Case of Emerging Markets

Cem Karacadag and Animesh Shrivastava

No 2000/215, IMF Working Papers from International Monetary Fund

Abstract: This paper evaluates the potential role of mandatory subordinated debt (MSD) in enhancing market discipline in emerging markets. The conceptual merits and key preconditions of MSD are first reviewed. Then, the extent to which emerging markets satisfy these preconditions—among them the monitorability of bank assets, the presence of nonbank financial investors, and liquid and “clean” capital markets—are evaluated. We find that emerging markets do not satisfy the preconditions for the successful implementation of a MSD policy. Therefore, efforts to enhance market discipline should first focus on satisfying these preconditions and improving the overall incentive environment and market infrastructure.

Keywords: WP; market discipline; debt market; emerging market; debt holder; MSD policy; Subordinated debt; capital standards; banking regulation; market participant; bank assets; debt price; risk profile; market microstructure theory; market contagion; Emerging and frontier financial markets; Capital markets; Securities markets; Stock markets; Stocks; Global; Europe (search for similar items in EconPapers)
Pages: 31
Date: 2000-12-01
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=3938 (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:imf:imfwpa:2000/215

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().