Keywords: Bonds, subordinated debt, bank holding companies, monitoring, data quality
Abstract: Much research is needed to implement a supervisory surveillance system
for banking organizations that relies on subordinated debt and other market
data. This paper is germane to that task.
We find subordinated debt spreads are most consistent across data
sources for the most liquid bonds (i.e., those of relatively large issuance
size, relatively young age, issued by relatively large firms) traded in a
relatively robust overall bond market. We also find there is a high degree
of concordance in rankings of firms by their minimum spreads across bonds
with especially strong agreement about which large firms are in the tails
of the spread distribution at each point in time. Our time-series results
support and provide guidance for the use of subordinated debt spreads in
supervisory monitoring, support the need for careful judgment when
interpreting such spreads, highlight difficulties with currently available
data sources, and motivate the need for further research.
Full paper (1134 KB PDF)
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Last update: May 1, 2001