Credit default swaps as indicators of bank financial distress

Davide Avino, Thomas Conlon and John Cotter

Journal of International Money and Finance, 2019, vol. 94, issue C, 132-139

Abstract: We examine whether CDS contracts written on individual banks are effective leading indicators of bank financial distress during a period of systemic bank crisis. Changes in CDS spreads are found to yield a robust signal of failure across a set of European and US banks, in keeping with indirect market discipline. Furthermore, changes in CDS spreads provide information about the condition of banks which supplements that available from equity markets and contained in accounting metrics. Our findings hold out-of-sample, for various cohorts, for subordinated CDS spreads, for idiosyncratic changes in CDS and are robust to the use of alternative measures of bank distress, including rating downgrades and accounting risk.

Keywords: Bank failure; Market discipline; Credit default swap; CDS (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0261560619301469
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Credit Default Swaps as Indicators of Bank financial Distress (2016)
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:eee:jimfin:v:94:y:2019:i:c:p:132-139

DOI: 10.1016/j.jimonfin.2019.03.001

Access Statistics for this article

Journal of International Money and Finance is currently edited by J. R. Lothian

More articles in Journal of International Money and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().