Do markets “discipline” all banks equally?

Journal of Financial Economic Policy - Tập 1 Số 1 - Trang 107-123 - 2009
Joa˜o A.C.Santos1
1Research Department, Federal Reserve Bank of New York, New York, New York, USA

Tóm tắt

PurposeThe purpose of this paper is to investigate whether the bond market disciplines all banks equally, in the sense of demanding the same relative risk premium across banks of different risk over the business cycle.Design/methodology/approachTo test this hypothesis, the paper compares the difference between the credit spreads in the primary market of bank and firm bonds with the same credit rating issued during expansions with that same difference of spreads for bonds issued during recessions.FindingsThe paper finds that during recessions investors demand higher risk premiums. Importantly, the paper finds that the impact of recessions is not uniform across banks – it affects riskier banks more than safer ones. In other words, in recessions investors are relatively more demanding on riskier banks than on safer ones.Originality/valueThese findings are novel. They also have important policy implications because they show that a bond‐issuance policy aimed at promoting market discipline could affect the relative funding costs of banks over the business cycle. They also indicate that the information which can be extracted from the credit spreads on bank bonds varies across banks for reasons unrelated to their risk.

Từ khóa


Tài liệu tham khảo

Avery, R.B., Belton, T.M. and Goldberg, M.A. (1988), “Market discipline in regulating bank risk: new evidence from the capital markets”, Journal of Money and Credit and Banking, Vol. 20 No. 4, pp. 597‐610.

Blackwell, D.W. and Kidwell, D.S. (1988), “An investigation of cost differences between public sales and private placements of debt”, Journal of Financial Economics, Vol. 22, pp. 253‐78.

Bliss, R.R. and Flannery, M.J. (2002), “Market discipline in the governance of US bank holding companies: monitoring vs. influencing”, European Finance Review, Vol. 6 No. 3, pp. 361‐95.

Calomiris, C.W. (1999), “Building and incentive compatible safety net”, Journal of Banking & Finance, Vol. 23, pp. 1499‐519.

Calomiris, C.W. and Kahn, C.M. (1991), “The role of demandable debt in structuring optimal banking arrangements”, American Economic Review, Vol. 81 No. 3, pp. 497‐513.

Collin‐Dufresne, P., Goldstein, R.S. and Martin, J.S. (2001), “The determinants of credit spreads changes”, Journal of Finance, Vol. 56 No. 6, pp. 2177‐207.

Diamond, D.W. (1984), “Financial intermediation and delegated monitoring”, Review of Economic Studies, Vol. 51, pp. 393‐414.

Diamond, D.W. and Dybvig, P.H. (1983), “Bank runs, deposit insurance and liquidity”, Journal of Political Economy, Vol. 91, pp. 401‐19.

Diamond, D.W. and Rajan, R.G. (1998), “Liquidity risk, liquidity creation and financial fragility: a theory of banking”, Journal of Political Economy, Vol. 109 No. 2, pp. 287‐327.

Evanoff, D.E. and Wall, L.D. (2000), “Subordinated debt and bank capital reform”, in Kaufman, G.G. (Ed.), Bank Fragility and Regulation: Evidence from Different Countries and Different Times, JAI Press, Greenwich, CT, pp. 53‐120.

Evanoff, D.E. and Wall, L.D. (2001), “Sub‐debt yield spreads as bank risk measures”, Journal of Financial Services Research, Vol. 20 No. 2, pp. 121‐45.

Fenn, G.W. (2000), “Speed of issuance and the adequacy of disclosure in the 144A high‐yield debt market”, Journal of Financial Economics, Vol. 56, pp. 383‐405.

Flannery, M.J. (1994), “Debt maturity and the deadweight cost of leverage: optimally financing banking firms”, American Economic Review, Vol. 84, pp. 320‐31.

Flannery, M.J. (1998), “Using market information in prudential bank supervision: a review of the US empirical evidence”, Journal of Money and Credit and Banking, Vol. 30 No. 3, pp. 273‐305.

Flannery, M.J. and Sorescu, S.M. (1996), “Evidence of bank market discipline in subordinated debenture yields: 1983‐1991”, Journal of Finance, Vol. 51 No. 4, pp. 1347‐77.

Gorton, G. and Santomero, A.M. (1990), “Market discipline and bank subordinated debt: note”, Journal of Money and Credit and Banking, Vol. 22 No. 1, pp. 119‐28.

Harrison, P. (2001), “The impact of market liquidity in times of stress on the corporate bond market: pricing, trading, and the availability of funds during heightened illiquidity”, Mimeo, Board of Governors of the Federal Reserve System, Washington, DC.

Jagtiani, J., Kaufman, G. and Lemieux, C. (2002), “Do markets discipline banks and bank holding companies? Evidence from the post‐FDICIA period”, Journal of Financial Research, Vol. 25 No. 4, pp. 559‐75.

Kwast, M.L., Covitz, D.M., Hancock, D., Houpt, J.V., Adkins, D.P., Barger, N., Bouchard, B., Connolly, J.F., Brady, T.F., English, W.B., Evanoff, D.D. and Wall, L.D. (1999), “Using sub‐debt as an instrument of market discipline”, Staff Study 172, Board of Governors of the Federal Reserve System, Washington, DC.

Morgan, D.P. (2000), “Rating banks: risk and uncertainty in an opaque industry”, American Economic Review, Vol. 92 No. 4, pp. 874‐88.

Morgan, D.P. and Stiroh, K.J. (2005), “‘Too big to fail’ and market discipline of banks: a cross‐sector study of investor perceptions”, Staff Reports 220, Federal Reserve Bank of New York, New York, NY.

Santos, J.A.C. (2006), “Why firm access to the bond market varies over the business cycle: a theory and some evidence”, Journal of Banking & Finance, Vol. 30 No. 10, pp. 2715‐36.

Sironi, A. (2003), “Testing for market discipline in the European banking industry: evidence from subordinated debt issues”, Journal of Money Credit and Banking, Vol. 35 No. 3, pp. 443‐72.

Thông tin
Thông tin xuất bản

Journal of Financial Economic Policy

Tập 1 Số 1

107-123

Thông tin tác giả