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The Role of Subordinated Debt in Market Discipline: The Case of Emerging Markets
Author:
Mr. Cem Karacadag
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and
Animesh Shrivastava null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2000: Issue 215
Language:
English
Publication Date:
01 Dec 2000
DOI:
https://doi.org/10.5089/9781451875034.001
ISBN:
9781451875034
ISSN:
1018-5941
Pages:
31
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
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund