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

Question

Quizplus · Accepted Answer

Subordinated debt holders have a greater incentive to monitor and discipline the DI's risk-taking behavior, as their claims in case of insolvency come after those of depositors and other creditors. This can lead to improved market discipline of the DI's risk structure.

One of the Overall Objectives in Using Subordinated Debt in Addition