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Determinants of bank credit default swap spreads: The role of the housing sector

Determinants of bank credit default swap spreads: The role of the housing sector

Benbouzid, Nadia and Mallick, Sushanta (2012) Determinants of bank credit default swap spreads: The role of the housing sector. North American Journal of Economics and Finance, 24. pp. 243-259. ISSN 1062-9408 (doi:10.1016/j.najef.2012.10.004)

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Abstract

This 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.

Item Type: Article
Uncontrolled Keywords: Corporate CDS spreads; Housing market; Credit crisis; Default risk; Liquidity risk
Subjects: H Social Sciences > HF Commerce > HF5601 Accounting
Faculty / Department / Research Group: Faculty of Business
Faculty of Business > Department of Accounting & Finance
Last Modified: 27 Jun 2017 12:01
Selected for GREAT 2016: None
Selected for GREAT 2017: None
Selected for GREAT 2018: None
URI: http://gala.gre.ac.uk/id/eprint/17404

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