The Credit Risk of Banks and Non-Banks During the Crisis: Evidence from the CDS Market

40 Pages Posted: 17 Sep 2011

See all articles by Burkhard Raunig

Burkhard Raunig

Austrian National Bank - Economic Studies Division

Date Written: September 16, 2011

Abstract

Using three alternative decompositions of the credit default swap premium this study examines how investors judge the credit risk of banks and non-banks before, during, and after the financial crisis of 2007-2009. The empirical findings, based on a sample of 213 major US and European firms, suggest that investors clearly distinguish between both types of firms. Investors appear in general to be more concerned about bank defaults, and even more so since the end of the crisis. However, investors attach a low loss given default (LGD) to banks in normal times. During the crisis the estimated LGD’s increase markedly and the difference in the LGD between both types of firms becomes statistically insignificant. However, the estimated LGD for banks does usually not exceed the estimated LGD for non-banks.

Keywords: Banks, credit risk, credit default swap, financial crisis, loss given default, risk premium

JEL Classification: E43, G12, G13

Suggested Citation

Raunig, Burkhard, The Credit Risk of Banks and Non-Banks During the Crisis: Evidence from the CDS Market (September 16, 2011). Midwest Finance Association 2012 Annual Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1928721 or http://dx.doi.org/10.2139/ssrn.1928721

Burkhard Raunig (Contact Author)

Austrian National Bank - Economic Studies Division ( email )

POB 61
Vienna, A-1011
Austria
+43 1 404 20 7219 (Phone)
+43 1 404 20 7299 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
129
Abstract Views
633
rank
225,555
PlumX Metrics