Research Discussion Papers, Bank of Finland
No 33/2014:
The determinants of global bank credit-default-swap spreads
Iftekhar Hasan ()
, Liuling Liu ()
and Gaiyan Zhang ()
Abstract: Using a sample of 161 global banks in 23 countries, we
examine the applicability of structural models and bank fundamentals to
price global bank credit risk. First, we find that variables predicted by
structural models (leverage, volatility, and risk-free rate) are
significantly associated with bank CDS spreads. Second, some CAMELS
indicators, including asset quality, cost efficiency, and sensitivity to
market risk, contain incremental information for bank CDS prices. Moreover,
leverage and asset quality have had a stronger impact on bank CDS since the
onset of the recent financial crisis. Banks in countries with lower stock
market volatility and/or more financial conglomerates restrictions tend to
have lower CDS spreads. Deposit insurance appears to have an adverse effect
on CDS spreads, indicating a moral hazard problem.
Keywords: bank credit default swaps; structural models; CAMELS; global banks; (follow links to similar papers)
JEL-Codes: G13; G15; G21; (follow links to similar papers)
45 pages, December 15, 2014
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