The fluctuating default risk of Australian banks

David Allen and Robert Powell

Australian Journal of Management, 2012, vol. 37, issue 2, 297-325

Abstract: Australian banks are widely considered to have fared far better during the Global Financial Crisis than their global counterparts, continuing to display solid earnings, good capitalization and strong credit ratings. Nonetheless, Australian banks experienced significant deterioration in the market values of assets. We use the KMV/Merton structural methodology, which incorporates market asset values, to examine default probabilities of Australian banks, making extensive international comparisons. We also modify the model to incorporate conditional probability of default, which measures extreme credit risk. We find that, during the Global Financial Crisis, based on extreme asset value fluctuations, Australian bank default probabilities fare only slightly better than their global counterparts. JEL Classification: G01, G21, G28

Keywords: Banks; credit risk; default; financial crisis (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:37:y:2012:i:2:p:297-325

DOI: 10.1177/0312896211432369

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