What is subordinated debt What is the difference between subordinated debt and subordinated bonds

I believe that the term subordinated bonds is commonly heard in bond investment, and subordinated debt is often confused because its name is very similar to that of subordinated bonds. The editor below introduces what is subordinated debt. What is the difference between subordinated debt and subordinated bonds.

What is subordinated debt

Subordinated debts are issued by banks with a fixed term of not less than 5 years (including 5 years). Unless the bank fails or is liquidated, it is not used to make up for the bank's daily operating losses, and the claim for this debt comes after deposits and other liabilities Commercial bank long-term debt. In general, subordinated debt has the following characteristics:

1. Less restrictions and high flexibility: Unlike ordinary bond issuance, commercial banks can decide whether to issue subordinated term debt as auxiliary capital according to their own circumstances. The method of raising funds is for the bank to target the creditors. Therefore, it is only necessary to make a request to the investors of the subordinated debt institution and the consent of the borrower and the lender. There is no need for regulatory approval, the procedures are simple, and there is no clear limit on the scale.

2. Long time: The fixed term is not less than 5 years, which is a medium and long-term financing tool.

3. It can be included in the net capital to improve the capital adequacy level and liquidity of the subordinated debt issuer.

The difference between subordinated debt and subordinated bonds

1. Different in nature: Subordinated debt is a long-term debt of a commercial bank, while subordinated debt is a form of debt lower than the general debt of a company.

2. The repayment order is different: the claims for subordinated debts are ranked after deposits and other liabilities, and the claims for subordinated bonds are better than the company's equity, but lower than the company's general debt.

3. Different roles: The role of subordinated debt is mainly to improve liquidity, reduce financing costs, strengthen market restraint, etc. The role of subordinated bonds is mainly to supplement the capital adequacy ratio.

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