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The Determinants of CDS Spreads: The Case of Banks

In: Financial Markets, SME Financing and Emerging Economies

Author

Listed:
  • Maria Mazzuca

    (University of Calabria)

  • Caterina Di Tommaso

    (University of Calabria)

  • Fabio Piluso

    (University of Calabria)

Abstract

Using a regression analysis, we study the determinants of credit default swapsCredit Default Swaps (CDS) spreads of 86 international banksBanks from 2009 to 2012. We are interested in empirically testing the explanatory power of credit risk, bank-specific, market and country-level factorsCountry-level factors . We find the following main results. The explanatory power of the model increases when bank-specific and market/country variables are considered. CapitalisationCapitalisation and size are the most relevant factors in determining the banks’ CDS spreads. When the rating decreases, the CDS premium increases, and this increase is significant when switching from investment to non-investment grade banks. Also, the market volatilityVolatility and slope of the yield curve affect the CDS spreads.

Suggested Citation

  • Maria Mazzuca & Caterina Di Tommaso & Fabio Piluso, 2017. "The Determinants of CDS Spreads: The Case of Banks," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Giusy Chesini & Elisa Giaretta & Andrea Paltrinieri (ed.), Financial Markets, SME Financing and Emerging Economies, chapter 0, pages 121-155, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-3-319-54891-3_7
    DOI: 10.1007/978-3-319-54891-3_7
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