DOUBLE LEVERAGE

When a bank holding company conducts a debt offering to acquire a large equity stake in a subsidiary bank. Ideally, dividends earned on the subsidiary company's stock are used to finance the holding company's interest payments.

Because banks have strict capital requirements on the amount of debt they can hold compared to other types companies, double leverage can be used by the parent holding company as an indirect workaround to give the bank access to debt-based capital. Some academics suggest that the fact that banks are willing to use double leverage may suggest that regulators should allow banks to use more debt-based financing.