Determinants of bank credit default swap spreads: The role of the housing sector

Benbouzid, Nadia; Mallick, Sushanta

doi:10.1016/j.najef.2012.10.004

Cited by 20 publications

(6 citation statements)

References 38 publications

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“…Eyssell et al (2013) 2001 -2010, China; country-specific factors (China stock market index, real interest rate) and global factors (U.S. S&P 500 stock option volatilities, default spreads, non-North America global stock market factor) have significant explanatory China's domestic economic factors were more relevant in explaining the CDS spread levels and changes in the earlier years; China sovereign CDS spread changes lead stock returns. Benbouzid & Mallick (2013) 2004 -2011; UK banking; house price dynamics are a key driving factor behind the increase in credit spreads as reflected in CDS prices; stock prices increase, both bank capital and bank borrowing capacity increase that in turn decreases credit risk; banking sector liquidity increases banks tend to lend to less credit-worthy (subprime) borrowers that in turn increases credit risk in the banking sector. Galil et al (2014) 2002 -2013; CDS spreads and CDS spread changes; 718 US firms; three explanatory variables appear to overshadow the other variables examined in this paper: Stock Return, change in stock return volatility; change in the median CDS spread in the rating class; ratings explain cross-section variation in CDS spreads even after controlling for structural model variables.…”

Section: Introductionmentioning

confidence: 99%

Fundamental determinants of credit default risk for European and American banks

Chodnicka-Jaworska

Jaworski

2017

Journal of International Studies

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Abstract. The aim of the paper is to identify the fundamental variables driving banks' credit default swaps. Quarterly data from 2004 to 2015 for European and American banks have been used. The analysis has been prepared through static panel data models. The following hypothesis has been put forward: the earnings potential, and economic uncertainty significantly influence credit risk. The independent variables used are CAMELS factors -Capital Adequacy, Asset Quality, Management Quality, Earnings Potential, Liquidity, and Sensitivity to Market Risk. The CDS spreads are most sensitive to the market risk factors whereas capital adequacy, earnings and liquidity indicators have weaker impact.

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Section: Introductionmentioning

confidence: 99%

Fundamental determinants of credit default risk for European and American banks

Chodnicka-Jaworska

Jaworski

2017

Journal of International Studies

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“…In this paper, we build upon the work of Benbouzid and Mallick (2013), which focuses on establishing the long-run relationship between the CDS premium and its determinants, by focusing on investigating the short-run dynamics of the factors driving the CDS premium. As such, we employ a VAR model to analyse the short-run effects of shocks in house prices and money, credit and stock market variables on CDS premium.…”

Section: Var Methods and Resultsmentioning

confidence: 99%

“…In this paper, we build upon the contribution of Benbouzid and Mallick (2013) who established the role of house prices in a single cointegrating equation. We contribute to the growing literature on CDS premiums, by combining the key financial factors in a unified multivariate time series framework with reference to the UK banking sector CDS and UK housing market.…”

Section: Introductionmentioning

confidence: 99%

The housing market and the credit default swap premium in the UK banking sector: A VAR approach

Benbouzid

Mallick

Pılbeam³

2018

Research in International Business and Finance

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In the wake of the recent global financial crisis, this paper investigates the determinants of the Credit Default Swap premium in the UK banking sector for the period January 2004-April 2011. Employing a VAR model, we focus on the roles played by house prices, the yield spread, the UK TED spread and the FTSE 100 index. Our main results suggest that the CDS premium significantly increases in the medium term following a positive shock to the house price index, reflecting that continued house price appreciation can hide the likelihood of default risk, as shown in the insignificant response in the short run. We also find that a positive shock to the CDS premium significantly reduces house prices because it induces banks and other financial institutions to lend less, reducing the demand for housing and exerting further downward pressure on house prices. While a positive shock to stock prices lowers the CDS premium, a positive shock to the liquidity premium increases the CDS premium. Finally, our variance decomposition analysis shows that the house price shock explains over 19% of the long-run forecast-error variance of the CDS premium, while shocks in other variables each explain less than 8% of this forecast-error variance.

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“…Previous studies examine determinants of credit spreads inferred from CDS indexes (Byström 2006;Naifar 2010;Benbouzid and Mallick 2013), single name CDS spreads (Cossin et al 2002;Benkert 2004;Hull, Predescu, and White 2004;Yu 2005;Fabozzi, Cheng, and Chen 2007;Ericsson, Jacobs, and Oviedo-Helfenberger 2009;Tang and Yan 2010), individual corporate bonds Tsuji 2005), and bond portfolios/indexes (Pedrosa and Roll 1998). There was, however, no previous study on determinants of credit spreads inferred from ASW indexes.…”

Section: Introductionmentioning

confidence: 99%

European asset swap spreads and the credit crisis

Aussenegg¹,

Götz²,

Jelic³

2014

The European Journal of Finance

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We examine time-varying behaviour and determinants of asset swap (ASW) spreads for 23 iBoxx European corporate bond indexes from January 2006 to January 2009. The results of a Markov switching model suggest that ASW spreads exhibit regime-dependent behaviour. The evidence is particularly strong for Financial and Corporates Subordinated indexes. Stock market volatility determines ASW spread changes in turbulent periods, whereas stock returns tend to affect spread changes in calm periods. While market liquidity affects spreads only in turbulent regimes the level of interest rates is an important determinant of spread changes in both regimes. Finally, we identify stock returns, lagged ASW spread levels, and lagged volatility of ASW spreads as major drivers of the regime shifts. The results are robust in the extended sample (January 2006 to October 2013) that includes a post-crisis period.

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Determinants of bank credit default swap spreads: The role of the housing sector

Cited by 20 publications

References 38 publications

Fundamental determinants of credit default risk for European and American banks

Fundamental determinants of credit default risk for European and American banks

The housing market and the credit default swap premium in the UK banking sector: A VAR approach

European asset swap spreads and the credit crisis

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