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Journal of Financial Services Research

, Volume 50, Issue 3, pp 275–309 | Cite as

The Determinants of Global Bank Credit-Default-Swap Spreads

  • Iftekhar Hasan
  • Liuling Liu
  • Gaiyan ZhangEmail author
Article

Abstract

Using a sample of 161 global banks in 23 countries, we examine the applicability of market-based structural models and accounting-based bank fundamentals to price global bank credit risk. First, we find that variables predicted by structural models are significantly associated with bank CDS spreads. Second, some CAMELS indicators contain incremental information for bank CDS prices. We find no evidence in favor of one model over the other, while the combined structural and CAMELS model performs better than each individual model. Moreover, leverage and asset quality have had a stronger impact on bank CDS since the onset of the recent financial crisis. Banks in countries with lower stock market volatility, fewer entry barriers, and/or more financial conglomerate restrictions tend to have lower credit risk. Deposit insurance appears to have an adverse effect on bank CDS spreads, indicating a moral hazard problem.

Keywords:

Credit default swaps, Structural models, CAMELS, Global banks, Bank regulation 

Notes

Acknowledgments

We thank the insightful and constructive comments and suggestions from one anonymous referee, the associate Editor Prof. Sanjiv Das and Editor Haluk Ünal. Gaiyan Zhang acknowledges the funding from Office of International Studies and Programs of University of Missouri-St. Louis.

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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  1. 1.Fordham University and Bank of FinlandNew YorkUSA
  2. 2.College of BusinessBowling Green State UniversityBowling GreenUSA
  3. 3.College of Business AdministrationUniversity of Missouri-St. LouisSt. LouisUSA

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