Debt Priority Structure, Market Discipline and Bank Conduct

Piotr Danisewicz, Danny McGowan, Enrico Onali, Klaus Schaeck

Research output: Contribution to journalArticle (Academic Journal)

5 Citations (Scopus)
130 Downloads (Pure)

Abstract

We examine how debt priority structure affects bank funding costs and soundness. Leveraging an unexplored natural experiment that changes the priority of claims on banks’ assets, we document asymmetric effects that are consistent with changes in monitoring intensity by various creditors depending on whether creditors move up or down the priority ladder. The enactment of depositor preference laws which confer priority on depositors reduces deposit rates but increases non-deposit rates. Importantly, subordinating non-depositor claims reduces bank risk-taking, consistent with market discipline. This insight highlights a role for debt priority structure in the regulatory framework.
Original languageEnglish
Article numberhhx111
Pages (from-to)4493-4555
Number of pages63
JournalReview of Financial Studies
Volume31
Issue number11
Early online date4 Nov 2017
DOIs
Publication statusPublished - Nov 2018

Keywords

  • market discipline
  • debt priority structure
  • banking regulation
  • natural experiment

Fingerprint Dive into the research topics of 'Debt Priority Structure, Market Discipline and Bank Conduct'. Together they form a unique fingerprint.

  • Cite this