The author develops a theoretical model of bank closure. The regulatory decision about bank failure consists of two parts: whether to close and how to close. Assuming that the closure decision is credible, the welfare implications of two resolution regimes are considered. In one case, a...

The author develops a dynamic model of banking competition to determine which capital instrument is most effective in disciplining banks' risk choice. Comparisons are conducted between equity, subordinated debentures (SD), and uninsured deposits (UD) as funding sources. The model, adapted from...

The author documents the use by Canadian banks of subordinated debt (SD) as a capital instrument. He reviews the economic benefits of this asset as a mechanism for market discipline and highlights academic and policy research over the past 20 years. The author provides both qualitative and...