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Debt priority structure, market discipline, and bank conduct

Danisewicz, Piotr; McGowan, Danny; Onali, Enrico; Schaeck, Klaus

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Piotr Danisewicz

Danny McGowan

Enrico Onali

Klaus Schaeck


© The Author 2017. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. We examine how debt priority structure affects bank funding costs and soundness. Leveraging an unexplored natural experiment that changes the priority of claims on banks’ assets, we document asymmetric effects that are consistent with changes in monitoring intensity by various creditors depending on whether creditors move up or down the priority ladder. The enactment of depositor preference laws that confer priority on depositors reduces deposit rates but increases nondeposit rates. Importantly, subordinating nondepositor claims reduces bank risk-taking, consistent with market discipline. This insight highlights a role for debt priority structure in the regulatory framework.


Danisewicz, P., McGowan, D., Onali, E., & Schaeck, K. (2018). Debt priority structure, market discipline, and bank conduct. Review of Financial Studies, 31(11), 4493-4555.

Journal Article Type Article
Acceptance Date Aug 31, 2017
Online Publication Date Nov 4, 2017
Publication Date 2018-11
Deposit Date Jun 18, 2018
Publicly Available Date Nov 5, 2019
Journal Review of Financial Studies
Print ISSN 0893-9454
Electronic ISSN 1465-7368
Publisher Oxford University Press
Peer Reviewed Peer Reviewed
Volume 31
Issue 11
Pages 4493-4555
Keywords Banks; Depository Institutions; Micro Finance Institutions; Mortgages G28 - Government Policy and Regulation
Public URL
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