Distance to Default and the Financial Crisis

Alistair Milne ()

Discussion Paper Series from Department of Economics, Loughborough University

Abstract: This paper analyses contingent-claims based measures of distance to default (D2D) for the 41 largest global banking institutions over the period 2006H2 to 20011H2. D2D falls from end-2006 through to end-2008. Cross-sectional differences in D2D prior to the crisis do not predict either bank failure or bank share prices decline, but D2D measured in mid-2008 does have some predictive value for failure by end-year. The ‘option value’ of the bank safety net remains small except at the height of the crisis and there is little indication of bank shareholders consciously using the safety net to shift risk onto taxpayers. (99 words)

Keywords: bank default; bank moral hazard; bank regulation; bank safety net; contingent claims; early warning systems; global financial crisis; market-based risk measurement; systemic risk; risk shiftingCreation-Date: 110613 (search for similar items in EconPapers)
JEL-codes: F15 F54 P33 (search for similar items in EconPapers)
Date: 2013-06, Revised 2013-06
New Economics Papers: this item is included in nep-ban, nep-cba and nep-rmg
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.lboro.ac.uk/departments/sbe/RePEc/lbo/lbowps/Milne_WP2013_03.pdf
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.lboro.ac.uk/departments/sbe/RePEc/lbo/lbowps/Milne_WP2013_03.pdf [301 Moved Permanently]--> https://www.lboro.ac.uk/departments/sbe/RePEc/lbo/lbowps/Milne_WP2013_03.pdf)

Related works:
Journal Article: Distance to default and the financial crisis (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lbo:lbowps:2013_03

Access Statistics for this paper

More papers in Discussion Paper Series from Department of Economics, Loughborough University Contact information at EDIRC.
Bibliographic data for series maintained by Huw Edwards ().