Credit Risk Spillovers among Financial Institutions around the Global Credit Crisis: Firm-Level Evidence
Management Science, Forthcoming
52 Pages Posted: 12 Oct 2010 Last revised: 25 Dec 2012
Date Written: July 10, 2012
Using credit default swap data, we propose a novel empirical framework to identify the structure of credit risk networks across international major financial institutions around the recent global credit crisis. Specifically, we identify three groups of players including prime senders, exchange centers and prime receivers of credit risk information. Leverage ratios and particularly the short-term debt ratio appear to be significant determinants of the roles of financial institutions in credit risk transfer, while corporate governance indexes, size, credit risk and liquidity premiums as well as asset write-downs are not significant. Our findings carry important implications for new regulatory standard on capital sub-charge and liquidity coverage ratio.
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