The Determinants of Global Bank Credit-Default-Swap Spreads

Iftekhar Hasan, Liuling Liu () and Gaiyan Zhang ()
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Liuling Liu: Bowling Green State University
Gaiyan Zhang: University of Missouri-St. Louis

Journal of Financial Services Research, 2016, vol. 50, issue 3, No 1, 275-309

Abstract: Abstract Using a sample of 161 global banks in 23 countries, we examine the applicability of market-based structural models and accounting-based bank fundamentals to price global bank credit risk. First, we find that variables predicted by structural models are significantly associated with bank CDS spreads. Second, some CAMELS indicators contain incremental information for bank CDS prices. We find no evidence in favor of one model over the other, while the combined structural and CAMELS model performs better than each individual model. 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, fewer entry barriers, and/or more financial conglomerate restrictions tend to have lower credit risk. Deposit insurance appears to have an adverse effect on bank CDS spreads, indicating a moral hazard problem.

Keywords: Credit default swaps; Structural models; CAMELS; Global banks; Bank regulation (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (35)

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Working Paper: The determinants of global bank credit-default-swap spreads (2014)
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DOI: 10.1007/s10693-015-0232-z

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