discipline, according to three economists writing for the Federal Reserve Bank of Chicago. Julapa Jagtiani, George Kaufman, and Catharine Lemieux look at pricing patterns on debt issued by large U.S. banks and their holding companies between 1992 and 1997.

They write that despite any implicit promise of government backing above and beyond insured deposits, investors weigh an issuer's credit risk when deciding what they will pay for it - particularly if the bank is undercapitalized.

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