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

December 1, 2000

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Format: Chicago

Cem Karacadag, and Animesh Shrivastava. The Role of Subordinated Debt in Market Discipline: The Case of Emerging Markets, (USA: International Monetary Fund, 2000) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Banking, Capital markets, Emerging and frontier financial markets, Financial institutions, Financial markets, Securities markets, Stock markets, Stocks, Tax incentives

Keywords: Bank assets, Banking regulation, Capital markets, Capital standards, Debt holder, Debt market, Debt price, Emerging and frontier financial markets, Emerging market, Europe, Global, Market contagion, Market discipline, Market microstructure theory, Market participant, MSD policy, Risk profile, Securities markets, Stock markets, Stocks, Subordinated debt, WP

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2000/215
Stock No:

WPIEA2152000
ISBN:

9781451875034
ISSN:

1018-5941

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