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On Credit-Spread Slopes and Predicting Bank Risk

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

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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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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  13. Jegadeesh, Narasimhan & Pennacchi, George G, 1996. "The Behavior of Interest Rates Implied by the Term Structure of Eurodollar Futures," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(3), pages 426-46, August.
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