Subordinated Debt and Market Discipline in Canada

Greg Caldwell
The author documents the use by Canadian banks of subordinated debt (SD) as a capital instrument. He reviews the economic benefits of this asset as a mechanism for market discipline and highlights academic and policy research over the past 20 years. The author provides both qualitative and quantitative summaries of the current regulatory and market environment in Canada, and conducts a Tobit analysis of factors that affect a bank's decision to issue SD. He also...
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