Research On The Issuing Of Subordinated Debt By Commercial Banks Of China

This paper focuses on Subordinated Debt (SND) issued by commercial banks in China.SND is a special form of debt. It is better than the company's share capital in order to repay interest, but below the company's general bonds. SND is a transaction whereby one creditor (the subordinated or junior creditor) agrees not to be paid by a borrower or other debtor until another creditor of the common debtor (the senior debtor) has been paid.SND origins from the US. Since the 1980s, a growing number of proposals on issuing SND have been set forth by the large financial groups. The earliest SND proposals were aimed at increasing the size of the financial cushion that could be used by the deposit insurer in the event of a bank failure, which reflected deposit insurance reforms implemented in the US. Subordinated debt was viewed as a relatively inexpensive substitute for equity capital, because subordinated investors receive their funds only after the deposit insurer is fully compensated and because the tax code permits corporations to deduct interest payments on debt instruments. Subsequent proposals emphasized SND's regulatory forbearance. some believed a bank's ability to issue new SND is a market signal of its viability. Others believed the Market would use yields on SND to trigger supervisory actions.New Basel Capital Accord issued in 2004 defined three pillars of the minimum capital requirements,supervision of inspection authorities and Market constraints. At the same time, China Banking Regulatory Commission issued a "capital adequacy ratio of commercial bank management", Capital adequacy ratio also became hard constraint of China's commercial banks. It's not difficult to see that with the evolution of the Basel agreement and its spread worldwide, Capital regulation has become the mainstream of international finance supervision and brought about a substantial impact to China's commercial banks from concept to practice. Subordinated debt, as a tool of adding capital proposed in Old Basel Agreement in 1988, has been widely recognized by commercial banks in many countries because of its positive role in banks'sustainable development. Subordinated Debt has the characteristics of both stock and bond. In addition to adding capital, it has a great effete on market regulation and helps to settle the problem concerning matching term between assets and debts. Therefore issuing subordinated debt, as been reckoned by China's commercial banks, has become an effective way changing narrow capital structure and meeting requirements of international finance supervision.There are five chapters in this paper.ChapterⅠis the introduction of full text. It contains four sections. It introduces the realistic Significance of choosing this topic and makes a literature review based on the existing research at home and abroad.ChapterⅡintroduces relative theories such as Bank's Capital, Basel Capital Accord and Subordinated Debt.ChapterⅢis a research on the issuing practice of China's commercial banks. It comprehensively analyzes on the history and situation of SND. It contains the issuance background, situation, the difference between China and the US, SND's positive effect as well as negative effect.ChapterⅣis a detailed case study based on Bank of China (BOC). It analyzes six attributes of BOC's SND, its impact on BOC's corporate finance. It contains the empirical test and evaluation on the SND's low interest.ChapterⅤputs forward some solutions and suggestions to perfect domestic subordinated debt market.