We provide evidence that a bank's subordinated debt yield spread is not, by itself, a sufficient measure of default risk. We use a model in which subordinated debt is held by investors with superior knowledge ("informed investor hypothesis"). First, we show that in theory the yield spread on...

We provide evidence that a bank's subordinated debt yield spread is not, by itself, a sufficient measure of default risk. We use a model in which subordinated debt is held by investors with superior knowledge (informed investor). First, we show that in theory the yield spread on subordinated...

We provide evidence that a bank's subordinated debt yield spread is not, by itself, a sufficient measure of default risk. We use a model in which subordinated debt is held by investors with superior knowledge (informed investor). First, we show that in theory the yield spread on subordinated...

In this paper, we test for the presence of market discipline in the Swiss deposit market. In particular, we examine whether depositors monitor their banks by withdrawing their saving deposits whenever the fundamentals of their bank is no longer satisfactory. We use a panel of bank-specific data...

In German literature, particularly in poetry, an amazing wealth of illustrations for economic contract theory can be found. Signaling, screening, incentive contracts, the winner's curse, and even the prisoner's dilemma within a team are treated by different writers. The respective examples are...

Market data, such as bond spreads or equity price volatility, are a complementary source to bank supervisory information. In Switzerland, meaningful market data are available for a number of banks which constitute a major part of the banking system. Notwithstanding some limitations (biases due...

Over the past decade several countries, including the US, have introduced or redesigned legislation that confers priority in bankruptcy upon all or some bank deposits. We argue that in the presence of contracting costs such rules can increase efficiency. We first show in a private information...

Insuffucient monitoring by depositors, and thus a lack of market discipline, are often seen as a typical feature of banks. We show that the opposite may be the case. Banks, defined as firms that borrow from a large number of partially uninformed investors, have a tendency to be excessively...

Market data, such as bond spreads or equity price volatility, are a complementary source to bank supervisory information. In Switzerland, meaningful market data are available for a number of banks which constitute a major part of the banking system. Notwithstanding some limitations (biases due...

In Switzerland, new bank insolvency legislation is under consideration. The article compares the proposed regulation with the rules that would be optimal from an economic point of view. Optimal rules are a compromise between value maximization and absolute priority on the one hand (ex post...