Determinants of bank credit default swap spreads: The role of the housing sector
AbstractThis paper relates credit spreads (CDS prices) in the UK banking sector with the performance of the housing sector. Using data on banking sector CDS spreads for the period January 2004 to April 2011, we find that house price dynamics are a key driving factor behind the increase in credit spreads as reflected in CDS prices. Also we find that as stock prices increase, both bank capital and bank borrowing capacity increase that in turn decreases credit risk. Furthermore as banking sector liquidity increases banks tend to lend to less credit-worthy (subprime) borrowers that in turn increases credit risk in the banking sector. Collectively the results shed light on the determinants of credit risk in the banking sector.
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Bibliographic InfoArticle provided by Elsevier in its journal The North American Journal of Economics and Finance.
Volume (Year): 24 (2013)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/inca/620163
Corporate CDS spreads; Housing market; Credit crisis; Default risk; Liquidity risk;
Find related papers by JEL classification:
- G01 - Financial Economics - - General - - - Financial Crises
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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- Loriana Pelizzon & Domenico Sartore, 2013. "Deciphering the Libor and Euribor Spreads during the subprime crisis," Working Papers 2013: 14, Department of Economics, University of Venice "Ca' Foscari".
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