When it comes to capital raising, there are several good reasons to consider issuing subordinated debt. For starters, it doesn't dilute existing shareholders like a stock offering would. The interest payments, unlike dividends, are tax deductible; and the proceeds, considered Tier 2 supplementary capital at the holding company level, count as Tier 1 capital if transferred to the bank.

But the main reason why subordinated debt issuance by banks is on the rise now following a long drought is renewed interest from investors.

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