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What determines bank CDS spreads? Evidence from European and US banks

Danilo Drago, Caterina Di Tommaso and John Thornton ()

Finance Research Letters, 2017, vol. 22, issue C, 140-145

Abstract: We examine the determinants of CDS spreads for a sample of European and US banks. The key balance sheet determinants are leverage, asset quality, funding stability, and bank size, and the key market determinants are equity returns, the term structure of interest rates and bank-specific and host country sovereign credit risk. Our results would appear to confirm the applicability of Merton (1974)-type models extended to include market variables to the understanding of bank credit risk.

Keywords: Credit default swaps; Bank credit risk; Balance sheet variables; Market variables (search for similar items in EconPapers)
JEL-codes: E43 G1 G12 G13 (search for similar items in EconPapers)
Date: 2017
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