Others reckon the biggest risk for European subordinated bank debt is market volatility, rather than the possibility bondholders will suffer losses.

WSJ: Riskier Debt Still Beckons After Losses

So the yield on this subordinated debt should reflect the market's assessment of the risks the bank is taking.

ECONOMIST: Economics focus

Under Basel III rules now being formulated, market participants are expecting certain types of subordinated debt to count toward a bank's loss-absorbing capital.

WSJ: Riskier Debt Still Beckons After Losses

That would do something to answer another objection: namely, that banks might find it too easy to collude by buying each other's subordinated debt, so that the price they charged was not a true market price.

ECONOMIST: Could banks police each other?