Requiring banks to issue subordinated debt may make it easier for regulators to quickly close ailing institutions, according to Joseph G. Haubrich of the Federal Reserve Bank of Cleveland.

Mr. Haubrich writes that regulators would have a tough time keeping a bank open if it could not meet its subordinated debt obligations because the market would know the bank was in default.

Also, holders of subordinated debt-among the last creditors to be repaid-likely would press regulators to quickly resolve troubled institutions rather than permit them to gamble remaining capital on a risky rescue strategy.

For a copy of "Subordinated Debt: Tough Love for Banks," visit www.clev.frb.org or e-mail econpubs-on clev.frb.org.

Regulators should adopt new ways to measure the effects of bank mergers on competition, writes Nicola Cetorelli of the Federal Reserve Bank of Chicago.

Ms. Cetorelli said the current measure of market concentration-the Herfindahl-Hirschman Index-is easy to compute and objective because regulators question mergers with concentration ratings of more than 1,800.

But the index may misstate the level of competition in a market because it assumes that concentration increases as banks gain market share. One option is to measure the elasticity of demand for loans-the degree to which companies will decrease their borrowing if rates rise, she writes. These types of supply and demand analyses could bring "higher rigor" to bank antitrust reviews, she concludes.

For a copy of "Competitive Analyses in Banking: Appraisal of the Methodologies," call 312-322-5111 or visit www.frbchi.org.

Credit card delinquency rates are rising because more borrowers maintain high debt burdens and work in jobs prone to frequent layoffs, two Federal Reserve Bank of New York researchers conclude.

This means that even modest drops in income result in financial distress for the borrowers, Sandra E. Black and Donald P. Morgan write.

"This increase in debt burdens among cardholders is the most important factor behind the recent rise in bad debt," the economists write.

Using data from the Survey of Consumer Finances, the researchers also find that credit card holders today are more likely to be single, rent rather than own, and have less job seniority than borrowers in 1989. They also are more willing to borrow for non-essentials such as vacations.

For a copy of "Meet the New Borrowers," call 212-720-6134 or visit www.ny.frb.org/rmaghome/curr_iss/1999.htm.

Arguing the markets cannot wait any longer for financial reform, a Cato Institute researcher calls on lawmakers to quickly dismantle the Glass- Steagall Act.

Congress also should let banks own equity stakes in nonfinancial corporations, impose the same rules on banking, insurance, and securities firms, and eliminate a prohibition against any banking company controlling more than 10% of the country's deposits, writes University of Chicago professor Randall S. Kroszner.

"Market forces can be very effective in minimizing the opportunities for conflicts of interest and avoiding any harm to consumers," Mr. Kroszner writes. "Customers can benefit from having the option of using financial services supermarkets if they so chose."

For a copy of "Bank Regulation: Will Regulators Catch Up With the Market?" call 202-842-0200 or visit www.cato.org/pubs/briefs/bp-045es.html. Research Scan runs on the second and last Fridays of the month. Submissions should be sent to American Banker, 1325 G St. NW, suite 900, Washington, D.C. 20005.

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