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NATO and the EU face similar strategic challenges, from bringing peace and security to their respective peripheries, through confronting terrorism, transnational crime, frozen conflicts, and potential pandemics. Greater efforts should be made to cooperate to promote security and stability and to avoid duplication and amplify influence for both organizations. Figures. Adapted from the source document.

Document de recherche du LEO - DR LEO 2005-29 ; A straightforward method to enhance market discipline in banking is the Mandatory Sub-Debt Policy (MSDP), i.e. a requirement by which some large banks are forced to regularly issue a certain minimum amount of subordinated and non-guaranteed debt. The reasons behind the mandatoty attribute of a MSDP are not trivial. At first glance, a MSDP may be even superfluous if one notes that existing sub-debt issues by many large banking organizations actually meet or exceed the minimum requirements put forward by the proponents of this reform proposal. Our objective is to demonstrate that despite this stylized fact, a MDSP is not unnecessary. Under the current regulation framework - that is, in the absence of a formal MSDP - market discipline can be easily alleviated because, as a bank's conditions deteriorates, the funding manager will shift toward insured deposits as a source of funding and will reduce the reliance on market-sensitive debt instruments. A MSDP eliminates this perverse quid pro quo by foring banks to regularly tap the primary market even when their financial conditions are weak. In the second part of the paper, we illustrate this intuition by performing several tests on European data. If the decision of issuing sub-debt is endogenous and/or subordinated creditors are really able to influence bank managers' behavior, we should find a positive correlation between the amount of sub-debt held in bank balance sheets and banking performance. Our main empirical findings can be summarized as follows. First, the sub-debt issues are made generally by the most profitable European banking organizations. Second, voluntary sub-debt issues allow banks to reduce their Tier 1 rations, while improving their overall capitalization (Tier 1 + Tier 2 ratios). Third, as far as concerns the risk profile, the amount of sub-debt held in bank balance sheet is negatively correlated with the quality of credit portfolio, but positively correlated with the ratio of loan loss reserve to total (gross) loans. These results arouse several reflections about the virtues and limitations of market discipline in banking in the absence of a formal MSDP. ; Cet article se concentre sur les propositions de dette subordonnée obligatoire comme instrument de discipline de marché. Une Politique de Dette Subordonnée (PDS) se définit comme une exigence réglementaire formelle par laquelle les grandes banques sont obligées d'émettre régulièrement et de maintenir un montant minimal de dette subordonnée sous forme de titres homogènes. L'article comble une lacune importante dans la littérature en fournissant une justification que nous croyons intéressante et robuste à la PDS. L'idée est de démontrer qu'une PDS obligatoire (pléonasme voulu) élimine les opportunités de contournement de la discipline de marché qui s'ouvrent aux banques en l'absence d'une telle politique ; en les contraignant à se soumettre continûment à l'examen du marché. Cette intuition est testée indirectement, en étudiant l'impact de la dette subordonnée sur la performance ex-post d'un échantillon de 500 banques européennes sur la période 1996-2003. Les principaux résultats obtenus confirment que la dette subordonnée est émise généralement par les banques dont les sources de revenus sont stables et très importantes. De surcroît, les émissions volontaires de dette subordonnée permettent aux banques de diminuer leurs ratios de fonds propres de base (Tier 1), tout en améliorant leur degré de capitalisation au sens large (Tier 1 + Tier 2). Enfin, quant au profil de risque, les banques ayant émis des montants importants de dette subordonnée exhibent généralement des ratios encours de crédit douteux/total crédit plus élevés en moyenne que ceux rapportés par leurs concurrentes. Néanmoins, cet effet pervers de la discipline de marché est contrecarré en partie par la détention de réserves pour le risque de crédit relativement plus importantes par ces mêmes banques.

Document de recherche du LEO - DR LEO 2005-29 ; A straightforward method to enhance market discipline in banking is the Mandatory Sub-Debt Policy (MSDP), i.e. a requirement by which some large banks are forced to regularly issue a certain minimum amount of subordinated and non-guaranteed debt. The reasons behind the mandatoty attribute of a MSDP are not trivial. At first glance, a MSDP may be even superfluous if one notes that existing sub-debt issues by many large banking organizations actually meet or exceed the minimum requirements put forward by the proponents of this reform proposal. Our objective is to demonstrate that despite this stylized fact, a MDSP is not unnecessary. Under the current regulation framework - that is, in the absence of a formal MSDP - market discipline can be easily alleviated because, as a bank's conditions deteriorates, the funding manager will shift toward insured deposits as a source of funding and will reduce the reliance on market-sensitive debt instruments. A MSDP eliminates this perverse quid pro quo by foring banks to regularly tap the primary market even when their financial conditions are weak. In the second part of the paper, we illustrate this intuition by performing several tests on European data. If the decision of issuing sub-debt is endogenous and/or subordinated creditors are really able to influence bank managers' behavior, we should find a positive correlation between the amount of sub-debt held in bank balance sheets and banking performance. Our main empirical findings can be summarized as follows. First, the sub-debt issues are made generally by the most profitable European banking organizations. Second, voluntary sub-debt issues allow banks to reduce their Tier 1 rations, while improving their overall capitalization (Tier 1 + Tier 2 ratios). Third, as far as concerns the risk profile, the amount of sub-debt held in bank balance sheet is negatively correlated with the quality of credit portfolio, but positively correlated with the ratio of loan loss reserve to ...

This article focuses on proposals for mandatory subordinated debt as a market discipline instrument. A Subordinated Debt Policy (PDS) is defined as a formal regulatory requirement whereby large banks are obliged to issue and maintain a minimum amount of subordinated debt in the form of homogeneous securities on a regular basis. The article fills an important gap in the literature by providing a justification that we believe to be interesting and robust to the PDS. The idea is to demonstrate that a mandatory PDS (desired pleonasm) eliminates opportunities for banks to circumvent market discipline in the absence of such a policy; by obliging them to submit to the market review on a continuous basis. This intuition is indirectly tested, looking at the impact of subordinated debt on the ex-post performance of a sample of 500 European banks over the period 1996-2003. The main results confirm that subordinated debt is generally issued by banks with stable and very important sources of income. In addition, voluntary subordinated debt issues allow banks to lower their core capital ratios (Tier 1), while improving their degree of capitalisation in a broad sense (Tier 1 Tier 2). Finally, as regards the risk profile, banks that have issued large amounts of subordinated debt generally have higher outstanding to total credit ratios on average than those reported by their competitors. However, this perverse effect of market discipline is partly counteracted by the holding of relatively larger credit risk reserves by the same banks. ; Document de recherche du LEO - DR LEO 2005-29 ; This article focuses on proposals for mandatory subordinated debt as a market discipline instrument. A Subordinated Debt Policy (PDS) is defined as a formal regulatory requirement whereby large banks are obliged to issue and maintain a minimum amount of subordinated debt in the form of homogeneous securities on a regular basis. The article fills an important gap in the literature by providing a justification that we believe to be interesting and ...