A reconsideration of the risk sensitivity of U.S. banking organization subordinated debt spreads: a sample selection approach

In this paper, banking organization funding strategies are analyzed using a subordinated debt issuance decision model estimated with data from 3 deposit insurance regimes: 1. the de facto too-big-to-fail (1985-87) regime, 2. the purchase and assumption (1988-92) regime, and 3. the post-FDICIA (1993-...

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Veröffentlicht in:Economic Policy Review - Federal Reserve Bank of New York 2004-09, Vol.10 (2), p.73
Hauptverfasser: Covitz, Daniel M, Hancock, Diana, Kwast, Myron L, Stiroh, Kevin J
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Sprache:eng
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Zusammenfassung:In this paper, banking organization funding strategies are analyzed using a subordinated debt issuance decision model estimated with data from 3 deposit insurance regimes: 1. the de facto too-big-to-fail (1985-87) regime, 2. the purchase and assumption (1988-92) regime, and 3. the post-FDICIA (1993-2002) regime. It is argued that banking organization subordinated debt issuance decisions can potentially censor the data available on issuance spreads for subordinated debt instruments. To test this hypothesis, a sample selection model, which incorporates the issuance decision model, is estimated, as well as an ordinary least square model, which does not correct for sample selection bias, to consider the risk sensitivity of observed issuance spreads as well as the effects of instrument characteristics, such as issue size and frequency of coupon payments, on such spreads.
ISSN:1932-0426
1932-0604