Several recent studies have recommended greater reliance on subordinated debt as a tool to discipline bank risk taking. Some of these proposals recommend using sub-debt yield spreads as triggers for supervisory discipline under prompt corrective action (PCA). Currently such action is prompted by...

In recent years there has been a growing realization that there are significant problems with the current bank risk-based capital guidelines. As financial firms have become more sophisticated and complex they have effectively arbitraged the existing capital requirements. They have become so good...

Since the early 1980s U.S. bank regulators have focused increasingly on the adequacy of banks' capital ratios. This article begins with a review of the changes to U.S. capital regulations and theoretical models for determining banks' capital strategy. The authors then survey numerous studies...

A system of bank supervision and regulation should protect taxpayers and the financial system without imposing unnecessary costs on banks. This article focuses on whether existing capital regulations, one of the primary tools of bank supervision and regulation, are imposing unnecessary costs on...

Industry observes have proposed increasing the role of subordinated debt in bank capital requirements as a means to increase market discipline. A recent Federal Reserve System Task Force evaluated the characteristics of such proposals. Here, the authors take the next step and offer a specific...