The Effect of Credit Risk on Bank and Bank Holding Company Bond Yields: Evidence from the Post-Fdicia Period

Posted: 17 Sep 2001

See all articles by Julapa Jagtiani

Julapa Jagtiani

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

George G. Kaufman

Loyola University Chicago

Catharine Lemieux

Federal Reserve Bank of Chicago

Abstract

In this article we examine whether the federal safety net is viewed by the market as being extended beyond de-jure deposits to other bank debt and even the debt of bank holding companies (BHCs). We extend previous research by focusing on the post-FDICIA period and by also examining the risk-return relation of bonds issued directly by banks, not BHCs. Our results provide evidence that both bank and BHC bonds are priced by the secondary market in relation to their underlying credit risk, particularly for less capitalized issuers, suggesting that proposals requiring banks to issue subordinated debt may enhance market monitoring and discipline and be useful in supplementing regulatory discipline.

Suggested Citation

Jagtiani, Julapa A. and Kaufman, George G. and Lemieux, Catharine, The Effect of Credit Risk on Bank and Bank Holding Company Bond Yields: Evidence from the Post-Fdicia Period. Available at SSRN: https://ssrn.com/abstract=274154

Julapa A. Jagtiani (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

George G. Kaufman

Loyola University Chicago ( email )

820 North Michigan Avenue
School of Business
Chicago, IL 60611
United States
312-915-7075 (Phone)
312-915-8508 (Fax)

HOME PAGE: http://www.luc.edu/faculty/gkaufma/

Catharine Lemieux

Federal Reserve Bank of Chicago

230 South LaSalle Street
Chicago, IL 60604
United States

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