Questions about the value of a subordinated debt requirement It is important to recognize that the costs and benefits of a subordinated debt policy – even one tailored to current market conventions – would vary over time. Subordinated debt in times of stress.
A mandatory subordinated debt requirement would likely be most costly to banking organizations when either the markets are under stress, the economy is deteriorating, or the bank itself is in financial difficulty. During these periods, the cost of issuing risk-sensitive securities would likely increase, and, at such times, forced issuance of subordinated debt would be particularly costly.