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Starting from the structural model developed by Merton (1974) and the derived notion of distance-to-default, we study the determinants of credit default swap (CDS) spreads for a sample of European banks over a period from January 2006 to December 2011. In particular, we test variables that are specific to the banking industry and look at the possible interaction with CDS spreads for the related sovereigns. We confirm findings from the literature review regarding the low significance of the structural model and its breakdown in times of stress. We confirm the importance of macro-economic components such as the general level of interest rates and the general state of the economy, particularly in times of stress. We find that before the crisis period the micro-and macro-components are generally predominant in the determination of CDS spread variations while the influence of sovereigns' CDS become more important when entering further into the crisis period. Interestingly, southern European countries are the first to become significant at the start of the crisis. Progressively, all CDS countries become increasingly significant, overweigh all other explanatory variables and remain so even after the crisis period, thereby suggesting the focused attention of market participants for the sovereign dimension.Keywords: Credit default swaps, CDS spreads, structural model, distance to default, banking debt, sovereign debt. AbstractStarting from the structural model developed by Merton (1974) and the derived notion of distance-to-default, we study the determinants of credit default swap (CDS) spreads for a sample of European banks over a period from January 2006 to December 2011. In particular, we test variables that are specific to the banking industry and look at the possible interaction with CDS spreads for the related sovereigns. We confirm findings from the literature review regarding the low significance of the structural model and its breakdown in times of stress. We confirm the importance of macro-economic components such as the general level of interest rates and the general state of the economy, particularly in times of stress. We find that before the crisis period the micro-and macro-components are generally predominant in the determination of CDS spread variations while the influence of sovereigns' CDS become more important when entering further into the crisis period. Interestingly, southern European countries are the first to become significant at the start of the crisis. Progressively, all CDS countries become increasingly significant, overweigh all other explanatory variables and remain so even after the crisis period, thereby suggesting the focused attention of market participants for the sovereign dimension.

Guest editorial The upstream oil and gas industry is known for its massive and complex projects around the globe. Many projects are very profitable, but this is more a result of high oil and gas prices that have prevailed in the past decade rather than to good project management. There is in fact a tendency for E&P projects to underperform—managements overspend, deliver late, and underproduce compared with the original targets. Worldwide experience shows that this is predominantly because of poor project definition, poor uncertainty management, and, hence, poor decisions. No doubt, exploration and production (E&P) projects are difficult to manage because they require coordinating and executing a vast array of activities at various levels of detail and complexity, such as technical evaluations, technology implementation, risk and uncertainty management, health and safety, economic evaluation, finance, contracting and procurement, governance, decision making, resourcing, planning and scheduling, stakeholder management, and societal responsibility. All the activities need to be aligned and integrated, which means that the people working the project and the stakeholders need to be aligned across discipline, functional (technical, economics, commercial, legal, and support functions), and company boundaries (governments, partners, and the public). This is a challenge to say the least. The management of E&P projects is becoming even more challenging because the industry is faced with producing more difficult hydrocarbons to meet increasing global energy demand. Production is not only coming in more remote areas, in deep water, and in harsh conditions, but also in a more complex geology, from heavy oil to tight and sour gas, and from unconventionals. In addition, projects tend to be subject to stricter regulations and higher standards in order to prevent accidents or to contain the health, safety, and environmental consequences. All these require a greater understanding of the subsurface, the application of advanced technologies, compliance to stricter regulations, more investments, and more (experienced) people.  Some E&P Learnings The following E&P project learning examples are probably valid, to a lesser or greater extent, for any industry sector involved in complex, high capital spending business opportunities and projects. A common complaint is that organizations tend to dive in without properly considering what the opportunity is about. They do not look at a wide enough variety of scenarios: Projects carry optimistic base case assumptions and/or narrow ranges in the outcome of the key uncertainties (e.g., reservoir properties or circumstances with an uncertain outcome could change the field development concept). Also the project management may not consider a sufficiently wide range of concepts and sometimes specific field development alternatives are overlooked. Project economics often do not sufficiently reflect the specific risks and uncertainties. The cost estimates are not transparent or appear to be largely based on historical costs models that do not take into account future projections related to the buoyant/overheated market, and cost contingencies may be based on standard percentages.

Purpose Central clearing counterparties’ (CCPs) specific loss allocation mechanism is reflected in the specific resolution regime designed at the international level. At the same time, international guidance texts require equity to bear losses first in resolution. This creates a tension that immediately exposes resolution authorities to potential claims from CCPs’ shareholders. The purpose of this paper is to seek possible options to solve that tension, thereby enabling a workable and credible resolution regime for CCPs. Design/methodology/approach The paper analyses the current tension between the no creditor worse-off (NCWO) counterfactual for CCPs and the “equity bears first losses in resolution” principle. It then considers six different options to solve this tension, ranging from a revision of insolvency law to the modification of the loss-allocation structure. Findings The paper concludes that additional layers of capital contribution, adapting the contractual arrangements or articles of incorporation and/or the creation of a specific NCWO counterfactual for shareholders could help in solving the identified tension. Practical implications The paper presents options on how to design a workable and credible resolution regime for CCPs that would enable resolution authorities to exercise their powers and have the flexibility to intervene at an early stage in recovery to prevent the exhaustion of available financial resources, without being unduly exposed to claims. Originality/value The paper contributes to the literature on CCP resolution. It is one of the first to analyse the articulation between the loss-allocation structure of CCPs, the NCWO principle and shareholders’ rights. We hope that this paper will encourage further literature to develop on this important subject.