Debt priority structure, market discipline and bank conduct

Danisewicz, Piotr, McGowan, Danny, Onali, Enrico and Schaeck, Klaus (2017). Debt priority structure, market discipline and bank conduct. Review of Financial Studies, In Pre ,

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.

Publication DOI: https://doi.org/10.1093/rfs/hhx111
Divisions: Aston Business School
Aston Business School > Economics finance & entrepreneurship
Additional Information: © The Author 2017. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. This is a pre-copyedited, author-produced version of an article accepted for publication in Review of Financial Studies following peer review. The version of record is available online at: https://academic.oup.com/rfs/advance-article/doi/10.1093/rfs/hhx111/4356575.
Published Date: 2017-11-04
Published Online Date: 2017-11-04
Authors: Danisewicz, Piotr
McGowan, Danny
Onali, Enrico ( 0000-0003-3723-2078)
Schaeck, Klaus

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Version: Accepted Version

Access Restriction: Restricted to Repository staff only until 4 November 2019.


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