DMCA
SND Yield Spreads as Bank Risk Measures (2001)
| Venue: | Journal of Financial Services Research |
| Citations: | 50 - 1 self |
BibTeX
@ARTICLE{Evanoff01sndyield,
author = {Douglas D. Evanoff and Larry D. Wall and Douglas D. Evanoff and Federal Reserve and Bank Chicago and Larry D. Wall and Federal Reserve and Bank Atlanta},
title = {SND Yield Spreads as Bank Risk Measures},
journal = {Journal of Financial Services Research},
year = {2001},
pages = {121--146}
}
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Abstract
Abstract: 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 capital adequacy measures. This paper provides the first empirical analysis of the relative accuracy of various capital ratios and sub-debt spreads in predicting bank condition, measured as subsequent CAMEL or BOPEC ratings. The results suggest that some of the capital ratios, including the summary measure used to trigger PCA, have almost no predictive power. Sub-debt yield spreads performed slightly better than the best capital measure, the Tier-1 leverage ratio, albeit the difference is not significant. The performance of sub-debt yields satisfies an important prerequisite for using sub-debt as a PCA trigger. However, the prediction errors are relatively high and further work to refine the measures would be desirable.
Keyphrases
bank risk measure snd yield spread sub-debt yield spread sub-debt yield satisfies sub-debt spread prompt corrective action capital adequacy measure relative accuracy important prerequisite summary measure subsequent camel predictive power several recent study currently action bopec rating tier-1 leverage ratio capital measure subordinated debt pca trigger various capital ratio first empirical analysis bank condition supervisory discipline bank risk prediction error capital ratio
