SHOULD A MANDATORY SUBORDINATED DEBT POLICY BE INTRODUCED IN THE UNITED KINGDOM? EVIDENCE FROM THE ISSUANCE ACTIVITY OF BANKS AND BUILDING SOCIETIES

"Current research is beginning to question the role and effectiveness of traditional rules-based bank regulatory oversight in favor of incentive-compatible regulatory design and market discipline and, in particular, mandatory subordinated debt market discipline. However, research on the suitability of a mandatory subordinated debt policy (MSNDP) has focused primarily on the United States. The primary aims of this article, therefore, are to examine the market for subordinated debt (SND) issued by UK credit institutions and to assess the suitability of introducing an MSNDP into UK banking regulation. A further contribution of this article is that it explores SND issuance and its characteristics at a bank level and, uniquely, considers them in relation to regulatory, structural, and economic events that either are specific to the UK or otherwise affect international banks. The article compares the UK findings with research on SND markets in the United States and Europe and, in so doing, raises concerns over whether an MSNDP for the largest global credit institutions would be feasible. Although the focus of this study is the UK banking industry, the country-focused bank-level approach provides conclusions that might be relevant to other countries considering the implementation of an MSNDP."("JEL" G18, G28) Copyright (c) 2009 Western Economic Association International.

On the role of regulatory banking capital

In this paper the authors study the role of regulatory banking capital and analyze the incentive effects of the Basel II Accord. They argue that Basel II may become a source of systemic risk due to endogenous risk and the risk sensitivity of the capital requirements. In this context they note that financial instability may enter via the asset side of the banks' balance sheets when banks are forced to sell assets in order to maintain the capital buffer prescribed by Basel II

Financial Stability, Regulation, Supervision, and Modern Central Banking

A discussion of the relationship between central banking and financial regulation and supervision, at the theoretical and policy leve