What determines bank CDS spreads? Evidence from European banks

Danilo Drago; Caterina di Tommaso; John Thornton

doi:10.1016/j.frl.2016.12.035

What determines bank CDS spreads? Evidence from European banks

Danilo Drago, Caterina di Tommaso, John Thornton

Norwich Business School

Research output: Contribution to journal › Article › peer-review

29 Citations (Scopus)

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Abstract

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.

Original language	English
Pages (from-to)	140-145
Journal	Finance Research Letters
Volume	22
Issue number	8
Early online date	3 Jan 2017
DOIs	https://doi.org/10.1016/j.frl.2016.12.035
Publication status	Published - Aug 2017

Access to Document

10.1016/j.frl.2016.12.035

Accepted_ManuscriptAccepted author manuscript, 712 KBLicence: CC BY-NC-ND

Cite this

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title = "What determines bank CDS spreads? Evidence from European banks",

abstract = "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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AB - 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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