One of the overall objectives in using subordinated debt in addition to common stock for a DTI's capital base is to improve market discipline of a DTI's risk structure.

Question

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Subordinated debt is a type of debt that is lower in priority than other debts in case of bankruptcy or liquidation. By including subordinated debt in a DTI's capital base, investors and creditors are incentivized to closely monitor the DTI's risks and financial health because they are less likely to be paid back if the DTI fails. This can improve market discipline and encourage more prudent risk management by the DTI.

One of the Overall Objectives in Using Subordinated Debt in Addition