We develop a main bank model where the main bank decides whether or not to raise additional funds from the capital market to continue to invest in a borrowing firm when nonmain banks withdraw funds. We show that the threat of withdrawal of nonmain banks is more likely not only to force the main...

Banking regulations recognize subordinated debt as capital, mainly because its subordination in payment likely incentivizes investors to determine the interest rate to discipline their bank against taking risk. We challenge the disciplinary view by introducing hybrid-natured investors in...