As one considers the various features that have been recommended in the existing subordinated debt proposals, it is important to keep in mind that there are strong reasons to stay closely aligned with current market practices and conventions. Capitalizing on such conventions could, of course, reduce the potential costs of a subordinated debt policy.
And, at the same time, a subordinated debt policy aligned with such conventions could be very effective. Given the current deep and liquid markets for subordinated debt, such a policy would likely improve the information content of secondary market debt spreads. These spreads would facilitate an increase in indirect market discipline.