Does Size of Banks Really Matter? Evidence from CDS Market Data
AbstractIn this study we try to find that whether markets take into account the phenomenon of Too Big to Fail. With the help of CDS market data, which reflects the risk, markets attribute on banks, we calculate the default probabilities of banks in one, two, and three years. Then we regress these results with financial values like total assets, total shareholders? equity and net income. Later on we extend our study and repeat our regression analysis using Return on Assets as dependent variable. We find that markets give more importance to profitability of a bank than its size when pricing the riskiness of the bank. We conclude that Too Big to Fail is not a valid term as thought but may be Too Profitable to Fail may be better.
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Bibliographic InfoPaper provided by Izmir University of Economics in its series Working Papers with number 1008.
Length: 28 pages
Date of creation: Nov 2010
Date of revision:
Banking; Too Big to Fail; CDS Market;
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-05 (All new papers)
- NEP-BAN-2011-03-05 (Banking)
- NEP-RMG-2011-03-05 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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