The Determinants of Global Bank Credit-Default-Swap Spreads

45 Pages Posted: 26 Apr 2016  

Iftekhar Hasan

Gabelli School of Business, Fordham University; Bank of Finland

Liuling Liu

Bowling Green State University - College of Business Administration

Gaiyan Zhang

University of Missouri at St. Louis - College of Business Administration

Multiple version iconThere are 2 versions of this paper

Date Written: December 31, 2014

Abstract

Using a sample of 161 global banks in 23 countries, we examine the applicability of structural models and bank fundamentals to price global bank credit risk. First, we find that variables predicted by structural models (leverage, volatility, and risk-free rate) are significantly associated with bank CDS spreads. Second, some CAMELS indicators, including asset quality, cost efficiency, and sensitivity to market risk, contain incremental information for bank CDS prices. Moreover, leverage and asset quality have had a stronger impact on bank CDS since the onset of the recent financial crisis. Banks in countries with lower stock market volatility and/or more financial conglomerates restrictions tend to have lower CDS spreads. Deposit insurance appears to have an adverse effect on CDS spreads, indicating a moral hazard problem. Keywords: bank credit default swaps, structural models, CAMELS, global banks

JEL Classification: G21, G13, G15

Suggested Citation

Hasan, Iftekhar and Liu, Liuling and Zhang, Gaiyan, The Determinants of Global Bank Credit-Default-Swap Spreads (December 31, 2014). Bank of Finland Research Discussion Paper No. 33/2014; Gabelli School of Business, Fordham University Research Paper No. 2770433. Available at SSRN: https://ssrn.com/abstract=2770433

Iftekhar Hasan (Contact Author)

Gabelli School of Business, Fordham University ( email )

Rose Hill Campus Bronx
New York, NY 10458
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

Liuling Liu

Bowling Green State University - College of Business Administration ( email )

Bowling Green, OH 43403
United States

Gaiyan Zhang

University of Missouri at St. Louis - College of Business Administration ( email )

One University Blvd
St. Louis, MO 63121
United States

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