Debt priority structure, market discipline, and bank conduct
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...
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| Format: | Article |
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Oxford University Press
2017
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| Online Access: | https://eprints.nottingham.ac.uk/52466/ |
| _version_ | 1848798732844269568 |
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| author | Danisewicz, Piotr McGowan, Danny Onali, Enrico Schaeck, Klaus |
| author_facet | Danisewicz, Piotr McGowan, Danny Onali, Enrico Schaeck, Klaus |
| author_sort | Danisewicz, Piotr |
| building | Nottingham Research Data Repository |
| collection | Online Access |
| description | 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 that confer priority on depositors reduces deposit rates but increases nondeposit rates. Importantly, subordinating nondepositor claims reduces bank risk-taking, consistent with market discipline. This insight highlights a role for debt priority structure in the regulatory framework. |
| first_indexed | 2025-11-14T20:24:27Z |
| format | Article |
| id | nottingham-52466 |
| institution | University of Nottingham Malaysia Campus |
| institution_category | Local University |
| last_indexed | 2025-11-14T20:24:27Z |
| publishDate | 2017 |
| publisher | Oxford University Press |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | nottingham-524662020-05-04T19:16:03Z https://eprints.nottingham.ac.uk/52466/ Debt priority structure, market discipline, and bank conduct Danisewicz, Piotr McGowan, Danny Onali, Enrico Schaeck, Klaus 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 that confer priority on depositors reduces deposit rates but increases nondeposit rates. Importantly, subordinating nondepositor claims reduces bank risk-taking, consistent with market discipline. This insight highlights a role for debt priority structure in the regulatory framework. Oxford University Press 2017-11-04 Article PeerReviewed Danisewicz, Piotr, McGowan, Danny, Onali, Enrico and Schaeck, Klaus (2017) Debt priority structure, market discipline, and bank conduct. Review of Financial Studies . ISSN 0893-9454 G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages G28 - Government Policy and Regulation https://academic.oup.com/rfs/advance-article/doi/10.1093/rfs/hhx111/4356575 doi:10.1093/rfs/hhx111 doi:10.1093/rfs/hhx111 |
| spellingShingle | G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages G28 - Government Policy and Regulation Danisewicz, Piotr McGowan, Danny Onali, Enrico Schaeck, Klaus Debt priority structure, market discipline, and bank conduct |
| title | Debt priority structure, market discipline, and bank conduct |
| title_full | Debt priority structure, market discipline, and bank conduct |
| title_fullStr | Debt priority structure, market discipline, and bank conduct |
| title_full_unstemmed | Debt priority structure, market discipline, and bank conduct |
| title_short | Debt priority structure, market discipline, and bank conduct |
| title_sort | debt priority structure, market discipline, and bank conduct |
| topic | G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages G28 - Government Policy and Regulation |
| url | https://eprints.nottingham.ac.uk/52466/ https://eprints.nottingham.ac.uk/52466/ https://eprints.nottingham.ac.uk/52466/ |