Determinants of CDS Trading on Major Banks

Posted: 26 Jul 2018 Last revised: 8 Apr 2021

See all articles by Benjamin Hippert

Benjamin Hippert

BaFin- Federal Financial Supervisory Authority

André Uhde

University of Paderborn - Faculty of Business Administration and Economics - Department of Taxation, Accounting & Finance

Sascha Tobias Wengerek

Paderborn University - Faculty of Business Administration and Economics - Department of Taxation, Accounting & Finance

Date Written: August 26, 2019

Abstract

Employing credit default swap (CDS) data for a sample of 52 major banks across 18 countries from 2008 to 2016, this paper investigates determinants of the outstanding net notional amount of CDS which are written on banks. We extend the current literature dealing with CDS trading by analyzing further CDS trading-specific, fundamental bank-specific as well as macroeconomic and institutional determinants with a focus on bank CDS trading. We find that, next to well-discussed determinants for corporate firms in the literature, especially a bank’s tail risk, capital adequacy, loan portfolio and business model affect a bank’s outstanding CDS net notional. This finding indicates that investors in the bank CDS market partly have a recourse to a fundamental analysis for their investment decision. Our study fills an important gap since empirical studies have solely focused on sovereign and corporate CDS yet. In addition, the analysis at hand provides important implications for both academics and practitioners since understanding the trading motives of bank CDS investors gives deeper insights into the still opaque CDS market.

Keywords: banking, outstanding CDS net notional, determinants of bank CDS trading

JEL Classification: G10, G12, G21

Suggested Citation

Hippert, Benjamin and Uhde, André and Wengerek, Sascha Tobias, Determinants of CDS Trading on Major Banks (August 26, 2019). Available at SSRN: https://ssrn.com/abstract=3218293

Benjamin Hippert (Contact Author)

BaFin- Federal Financial Supervisory Authority ( email )

Graurheindorfer Str. 108
Bonn, 53117
Germany

André Uhde

University of Paderborn - Faculty of Business Administration and Economics - Department of Taxation, Accounting & Finance ( email )

Warburger Str. 100
D-33098 Paderborn
Germany

Sascha Tobias Wengerek

Paderborn University - Faculty of Business Administration and Economics - Department of Taxation, Accounting & Finance ( email )

Warburger Str. 100
Paderborn, D-33098
Germany

HOME PAGE: http://www.upb.de/finance

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