Are Banks Different? Evidence from the CDS Market

Burkhard Raunig and Martin Scheicher ()
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Martin Scheicher: European Central Bank, Kaiserstrasse 29, D – 60311, Frankfurt am Main, Germany,

Working Papers from Oesterreichische Nationalbank (Austrian Central Bank)

Abstract: This paper uses regression analysis to compare the market pricing of the default risk of banks to that of other firms. We study how CDS traders discriminate between banks and other type of firms and how their judgement changes over time, in particular, since the start of the recent financial turmoil. We use monthly data on the Credit Default Swaps (CDS) of 41 major banks and 162 non-banks. By means of panel analysis, we decompose the CDS premia into the expected loss and the risk premium. Our primary result is that market participants indeed viewed banks differently and that they drastically changed their mind during the recent turmoil that started in August 2007.

Keywords: Credit default swap; market discipline; default risk; risk premium (search for similar items in EconPapers)
JEL-codes: E43 G12 G13 (search for similar items in EconPapers)
Pages: 47
Date: 2009-02-16
New Economics Papers: this item is included in nep-ban, nep-bec, nep-fmk, nep-mac and nep-rmg
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Citations: View citations in EconPapers (23)

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