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Question
Subordinate debt (SD) has been proposed as a means of increasing the degree of overall market discipline at a depository institution. Which of the following objectives is considered to be achievable when attempting to increase market discipline?
A. Issuing SD might increase the size of the DI's capital cushion.
B. The expected cost of issuing SD should decrease as the risk of the DI increased.
C. Mandatory SD would reduce transparency at DIs.
D. SD would further emphasize the use of capital forbearance.
E. Secondary market yields on the SD would be inversely related to an increase in the risk of the DI.
Answer
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