Far from encouraging the use of subordinated debt, the Basle standards actually discriminate against it.
But it's still unclear whether it can impose losses on unsecured debt, such as bonds and subordinated debt.
If a bank were free to issue such subordinated debt at any yield, the scheme would not quite do.
So the yield on this subordinated debt should reflect the market's assessment of the risks the bank is taking.
The number of small savers involved makes it different to bailed-out Ireland, where subordinated debt holders took losses of up to 80%.
At this point, they would also have to stop paying interest on their preferred subordinated debt, since this cannot be paid before dividends.
Under Basel III rules now being formulated, market participants are expecting certain types of subordinated debt to count toward a bank's loss-absorbing capital.
But there is not enough equity and subordinated debt to absorb the losses, so depositors would somehow have to be bailed in too.
Investors will buy subordinated debt at a yield quite close to the riskless rate only if they are sure the bank is low-risk.
Since subordinated debt has less protection than senior, secured debt in bankruptcy proceedings, Triangle is able to charge higher, junk-bond rates to borrowers.
Similarly, keeping weak life insurers alive helps the country's banks, which have lent large sums, often in the form of subordinated debt, to insurers.
These notes were akin to subordinated debt of bank holding companies: They provided a capital cushion to help protect policyholders from any future unpleasantness.
Only one government, Argentina's, appears to rely on this sort of mechanism (and it has balked at setting a yield-cap on the subordinated debt).
The second element was championed by Charles Calomiris of Columbia University, who is a tireless advocate of a role for subordinated debt in bank regulation.
Bonuses paid in shares or subordinated debt will still be very valuable to the recipients, and will be seen by many as unfair and unwarranted.
The new insurance law, expected to take effect next month, will force policyholders, who in bankruptcy proceedings take precedence over holders of subordinated debt, to lose out first.
The nationalisation, carried out under the Netherlands' 2012 law on bank intervention, will mean shareholders of the bank and subordinated debt holders will see their stakes wiped out.
Subordinated debt (uninsured certificates of deposit) is simply junior debt.
Meanwhile, banks managed to bounce off lows reached early in the session after Moody's Investors Service said it may downgrade the subordinated debt of 87 European banks, to end higher.
Which is perceived today by investors as something of a joke, in that the cost of insuring Dexia's subordinate debt implies that providers of this subordinated debt are facing losses of 35%.
The government is also proposing to strengthen banks by buying preference shares and subordinated debt and by approving some new accounting tricks, such as not deducting unrealised losses on equities from banks' capital.
Worse still, if a large U.S. money center bank becomes too big to fail, can the regulators stab bondholders with the same type of cram down tactics experienced by Anglo Irish subordinated debt holders?
The subordinated debt also goes out the window.
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That would do something to answer another objection: namely, that banks might find it too easy to collude by buying each other's subordinated debt, so that the price they charged was not a true market price.
While Nationwide, an investment-grade borrower, found favor with investors, many asset managers are adopting a case-by-case approach to subordinated debt, rather than rushing to buy as they look for yield at a time when interest rates are ultralow.
Senior bond holders are higher up the pecking order and would walk away with some if not all capital returned should the company enter bankruptcy, while subordinated debt holders are left holding the bag and are on the hook for losses in the event that prospects worsen.
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In particular, it might have made life easier for those who run our biggest banks if the FSA had imposed a ban on all cash bonuses - in that if none can pay in cash (as opposed to paying out in shares or subordinated debt) then they would not have to worry about losing people to rivals down the road.
Because the incentives of subordinated-debt holders are closely aligned with those of the deposit-insurance fund (and hence of taxpayers).
Others reckon the biggest risk for European subordinated bank debt is market volatility, rather than the possibility bondholders will suffer losses.
Meanwhile, in Spain, Ireland and most recently the Netherlands, the cost of bank rescues has been partially borne by holders of subordinated bank debt.
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