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On Credit-Spread Slopes and Predicting Bank Risk

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  • Krishnan, C. N. V.
  • Ritchken, P. H.
  • Thomson, J. B.

Abstract

We examine whether bank credit-spread curves, engendered by subordinated debt, would help predict bank risk. We extract credit-spread curves for each bank each quarter and analyze the predictive properties of credit-spread slopes. We find that credit-spread slopes are significant predictors of future credit spreads. We also find that credit-spread slopes provide significant additional information on future bank risk variables, over and above other bank-specific and market-wide information.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 38 (2006)
Issue (Month): 6 (September)
Pages: 1545-1574

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Handle: RePEc:mcb:jmoncb:v:38:y:2006:i:6:p:1545-1574

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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Cited by:
  1. Krishnan, C.N.V. & Ergungor, O. Emre & Laux, Paul A. & Singh, Ajai K. & Zebedee, Allan A., 2010. "Examining bank SEOs: Are offers made by undercapitalized banks different?," Journal of Financial Intermediation, Elsevier, vol. 19(2), pages 207-234, April.
  2. C.N.V. Krishnan & Peter H. Ritchken & James B. Thomson, 2007. "On forecasting the term structure of credit spreads," Working Paper 0705, Federal Reserve Bank of Cleveland.
  3. Krishnan, C.N.V. & Ritchken, Peter H. & Thomson, James B., 2010. "Predicting credit spreads," Journal of Financial Intermediation, Elsevier, vol. 19(4), pages 529-563, October.
  4. Adrian Pop, 2009. "Beyond the Third Pillar of Basel Two: Taking Bond Market Signals Seriously," Working Papers hal-00419241, HAL.
  5. Evanoff, Douglas D. & Jagtiani, Julapa A. & Nakata, Taisuke, 2011. "Enhancing market discipline in banking: The role of subordinated debt in financial regulatory reform," Journal of Economics and Business, Elsevier, vol. 63(1), pages 1-22, January.
  6. Kedia, Simi & Zhou, Xing, 2014. "Informed trading around acquisitions: Evidence from corporate bonds," Journal of Financial Markets, Elsevier, vol. 18(C), pages 182-205.

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