Do CDS markets care about the G-SIB status?

Mario Bellia, Wouter Heynderickx, Sara Maccaferri and Sebastian Schich

No 2020-02, JRC Working Papers in Economics and Finance from Joint Research Centre, European Commission

Abstract: "Ending too big to fail" is a declared policy aim and a key element of the globally coordinated financial regulatory reform. An official list of banks considered to be global systemically important (G-SIBs) is published on an annual basis since 2011. The goal of the present paper is to assess to what extent equity and CDS markets care about the official releases of the G-SIB lists and, in particular, whether the inclusion of a bank in the G-SIB list is good or bad news for bank debt and equity holders. The analysis applies both event-studies and panel regressions and relies upon European banks' CDS senior and subordinated quotes and equity prices to evaluate their reactions to the publications of the G-SIB lists. The analysis spans from the first leaked G-SIB list by the Financial Times as of 2009 to the 2017 official publication of the list. Results show that equity and senior/subordinated CDS spreads react differently to the events considered and that reactions evolve over time. During the rst events considered in the analysis, CDS of banks classified as G-SIBs react less than those of other banks. Results for more recent events are more mixed, potentially reflecting that recent releases of G-SIBs lists entail less information. The analysis also devotes special attention to a subset of "intermediate" banks that in principle are eligible to enter in the G-SIBs list, as compared to other banks that will obviously be included/excluded in the list given their size and footprint. This narrowed focus allows us to obtain more efficient results.

Keywords: Credit Default Swap (CDS); G-SIB; Too Big to Fail; Event Study (search for similar items in EconPapers)
JEL-codes: G18 G28 G32 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2020-06
New Economics Papers: this item is included in nep-ban and nep-cba
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Published by Publications Office of the European Union, 2020

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Persistent link: https://EconPapers.repec.org/RePEc:jrs:wpaper:202002

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