Subordinated loans typically have a lower credit rating, and, therefore, a higher yield than senior debt.
Before the 2007–2008 financial crisis, subordinated debt was issued periodically by most large banking corporations in the U.S.
This, hopefully, creates both an early-warning system, like the so-called "canary in the mine", and, also hopefully, an incentive for bank management to act prudently, thus helping to offset the moral hazard that can otherwise exist, especially in a circumstance where banks have limited equity and deposits are insured.
[5] This role of subordinated debt has attracted increasing attention from policy analysts in recent years.
Corporate issuers tend to prefer not to issue subordinated bonds because of the higher interest rate required to compensate for the higher risk, but may be forced to do so if indentures on earlier issues mandate their status as senior bonds.