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Empirical Analysis of the Market Discipline Effect of Commercial Bank’s Subordinated Debt in2004-2012

Author: FanLiZhi
Tutor: OuYangYong
School: Southwestern University of Finance and Economics
Course: Finance
Keywords: subordinated debt Market discipline Government’s implicitguarantee
CLC: F224
Type: Master's thesis
Year: 2012
Downloads: 107
Quote: 0
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Abstract


After2009, China’s subordinated debt market experienced a rapid and vigorous development. The size of Subordinated debt issue for2009was268.14billion RMB,122.79billion RMB in2010,and2011324.1billion RMB before2009, the biggest size was not more than82.885billion RMB, and the smallest was only9.5billion RMB. Obviously the subordinated debt market has entered a new development stage after2009.Subordinated debt is a natural tool of market constraint. Market constraint is one of the three pillars of Basel II. The international community has paid great deal of attention on it. Our country introduced the subordinated bonds from2003, and since then it had developed rapidly. Our Banking Regulatory Commission issued a document specifically to regulate the banks among holders of the Subordinated debt which are included in supplementary capital in2009.After a series of reforms and development. Does the subordinated bonds market constraint really exist or not in our country?This article analyses the prerequisite of subordinated debt playing the role of market constraints on the basis of describe the features and functionality of subordinated debt. I also analyzed subordinated debt market from five angles of debt size, bond maturity, bonds to raise way, bond yields, bond investors since2003to now. The debts of China’s state-owned bank had large-scale the long duration and were always issued using a combination of fixed-rate and floating interest rate. joint-stock banks’scale is followed by, city commercial banks are minimum.The empirical analysis make the subordinated debt yields over the national debt spreads as the dependent variable,the debt size as the control variables.bank type and maturity of a bond as the dummy variables,bank asset size, capital adequacy ratio, return on assets, non-performing loan ratio, liquidity ratio as the dependent variables. Separate regression for the full sample data and sample data after2009.Confirm that the market constraints of Subordinated debt in China is exist actually, and after2009has been enhanced.Finally, my conclusion is:China should establish a deposit insurance system, to eliminate the impact of the Government’s implicit guarantee of the bank. Strengthen the regulation of holders of Subordinated debt of banks to prevent systemic risk of infection. Diversification of investment, increase the liquidity of the market.Production design should be more reasonable for the benefit of investors. Rating on the bonds should be gradually converted to investor initiative rating, cut off the interest chain of issuers and rating company. China can try to force the joint-stock banks to issue subordinated bonds on a regular basis as a pilot reform.Following are the innovation of this paper.First, the sample data in this article is comprehensive, timeliness. Second, the paper makes a separate regression of samples after2009, to determine whether the market discipline effect of the subordinated debt enhanced.Third, make a comprehensive analysis of China’s subordinated debt market from the two dimensions of time order and bank category. Fourth, the paper recommended the establishment of explicit deposit insurance system in China, and joint-stock banks as a pilot, to force our banks to issue subordinated bonds in order to promote the market discipline effect of the subordinated debt market.The inadequacies are the following points:first, the bank’s financial data is time lag. Second, there is no credit rating variable in the empirical analysis. Third, did not analyze the holding situation of subordinated debt between bank.hope teachers and readers can forgive me.

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