Investors will buy subordinated debt at a yield quite close to the riskless rate only if they are sure the bank is low-risk.

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Bond spreads have already registered the fact that in the world of developed nation sovereign debt, we are middle of the pack, not riskless Olympian gods.

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We may quibble that those are anything but riskless assets for the banks, but what national bank regulators are going to downgrade and mark down their own sovereign debt to fail their own banks?

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