Determinants of bank CDS spreads in Europe

Samaniego‐Medina, Reyes; Trujillo‐Ponce, Antonio; Parrado-Martínez, Purificación; Pietro, Filippo Di

doi:10.1016/j.jeconbus.2016.03.001

Cited by 28 publications

(17 citation statements)

References 41 publications

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“…This combined with an extensive theoretical literature showing that changes in bank leverage can propagate adverse shocks to the real sector (e.g., Kiyotaki and Moore, 1997;Bernanke and Gertler, 1995), and that systemic banking crises remain relatively frequent and costly (Laeven and Valencia, 2012), has encouraged several studies using CDS spreads to model bank credit risk (e.g., Samaniego-Medina et al, 2016;Hasan et al, 2014;Annaert et al, 2013;Chiaramonte and Casu, 2013;Alter and Schüler, 2012). In this short paper, we contribute to the literature on the determinants of bank CDS spreads in two ways.…”

Section: Introductionmentioning

confidence: 99%

What determines bank CDS spreads? Evidence from European and US banks

Drago

Tommaso

Thornton

2017

Finance Research Letters

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We examine the determinants of CDS spreads for a sample of European and US banks. The key balance sheet determinants are leverage, asset quality, funding stability, and bank size, and the key market determinants are equity returns, the term structure of interest rates and bank-specific and host country sovereign credit risk. Our results would appear to confirm the applicability of Merton (1974)-type models extended to include market variables to the understanding of bank credit risk.

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Section: Introductionmentioning

confidence: 99%

What determines bank CDS spreads? Evidence from European and US banks

Drago

Tommaso

Thornton

2017

Finance Research Letters

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“…Therefore, the work contributes to the debate between intervention and non-intervention of monetary policy, in particular, between the "leaning against the wind" approach, which believes that central banks should use monetary stance also to management financial imbalances, and the "modified Jackson Hole consensus", which argues that the central banks have to focus only on price stability (Smets (2014)). Fourth, our work contributes to different branches of literature: (i) the researches on contagion and risk spillovers (Giglio (2016); De Bruyckere et al (2013); Battiston et al (2012)) 3 ; (ii) the application spatial econometrics models in the financial contest (Catania and Billé (2017)); (iii) the study of the determinants of CDS spread 4 (Annaert et al (2013); Samaniego-Medina et al (2016)); and (iv) the study of the bank risk-taking channel (Buch et al (2014); Angeloni et al (2015)).…”

Section: Introductionmentioning

confidence: 99%

“…Introducing cross-sectional correlations, we are also able to incorporate shock-induced effects on regressors, such as stock market collapses. By contrast, the works of Samaniego-Medina et al (2016) and Annaert et al (2013) examining the CDS spread determinants for European banks use a classic version of panel models. Second, we estimate the time-varying dynamic of contagion with respect to the papers of Eder and Keiler (2015) and Calabrese et al (2017), who used a static version of the SAR model and binary spatial autoregressive model, respectively.…”

Section: Introductionmentioning

confidence: 99%

The Time-Spatial Dimension of Eurozone Banking Systemic Risk

Foglia

Angelini

2019

Risks

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In this paper, we measure the systemic risk with a novel methodology, based on a “spatial-temporal” approach. We propose a new bank systemic risk measure to consider the two components of systemic risk: cross-sectional and time dimension. The aim is to highlight the “time-space dynamics” of contagion, i.e., if the CDS spread of bank i depends on the CDS spread of other banks. To do this, we use an advanced spatial econometrics design with a time-varying spatial dependence that can be interpreted as an index of the degree of cross-sectional spillovers. The findings highlight that the Eurozone banks have strong spatial dependence in the evolution of CDS spread, namely the contagion effect is present and persistent. Moreover, we analyse the role of the European Central Bank in managing contagion risk. We find that monetary policy has been effective in reducing systemic risk. However, the results show that systemic risk does not imply a policy intervention, highlighting how financial stability policy is not yet an objective.

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“…At the same time, research using market information as a complement to accounting indicators has been based on Merton's [22] approach to modelling the risk of credit defaults. Some studies have used credit risk spread CDs [23][24][25][26][27][28][29][30][31] or credit ratings [32][33][34].…”

Section: Related Literaturementioning

confidence: 99%

Risk Profile Indicators and Spanish Banks’ Probability of Default from a Regulatory Approach

Gómez-Fernández-Aguado

Parrado-Martínez

Ureña

2018

Sustainability

Self Cite

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This paper analyses the relationships between the traditional bank risk profile indicators and a new measure of banks' probability of default that considers the Basel regulatory framework. First, based on the SYstemic Model of Bank Originated Losses (SYMBOL), we calculated the individual probabilities of default (PD) of a representative sample of Spanish credit institutions during the period of 2008-2016. Then, panel data regressions were estimated to explore the influence of the risk indicators on the PD. Our findings on the Spanish banking system could be important to regulatory and supervisory authorities. First, the PD based on the SYMBOL model could be used to analyse bank risk from a regulatory approach. Second, the results might be useful for designing new regulations focused on the key factors that affect the banks' probability of default. Third, our findings reveal that the emphasis on regulation and supervision should differ by type of entity.

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Determinants of bank CDS spreads in Europe

Cited by 28 publications

References 41 publications

What determines bank CDS spreads? Evidence from European and US banks

What determines bank CDS spreads? Evidence from European and US banks

The Time-Spatial Dimension of Eurozone Banking Systemic Risk

Risk Profile Indicators and Spanish Banks’ Probability of Default from a Regulatory Approach

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