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RESEARCH PRODUCT

Subordinated debt in banking: a regulatory perspective

subject

description

The banking industry during the 1980s was characterised by the rapid spread of products and services innovations. A vast growth in this area belongs to subordinated debt. Among the instruments created for the banks' need of self-financing, subordinated debts are identified as a particular category: people who are granted a subordinated debt mainly assume the risk of the issuer's insolvency accepting to place themselves in an intermediate position between the owners and all the other creditors. Purpose of this study is to analyse the framework of this particular class of debt. Subordinated debts tend to be the first shock absorber able to incorporate the losses and tend to be very volatile when the uncertainty on issuers increases. Moreover, it is interesting to study the subordinated debt trend in this period of financial instability in banking and relate also their fluctuations to the normative regulation changes.