An analysis of European banks SND issues and its implications for the design of a mandatory subordinated debt policy

During the last twenty years an increasing number of proposals to improve bank market discipline through the introduction of a mandatory subordinated debt policy have been drafted and critically discussed by academic economists and bank regulators. While theoretical issues are key in this debate, a proper understanding of the market of banks' subordinated notes and debentures (SND) and of the securities main features is also considered as relevant for the potential introduction, design, and goals setting of such a policy. This paper builds on information concerning issuers, investors, markets, and securities technical features to critically discuss these aspects. Data on over 1,800 European banks' SND issues completed during the 1988-2000 period together with information on primary and secondary market functioning is presented.