The Fundamental Determinants of Credit Default Risk for European Large Complex Financial Institutions / Jiri Podpiera, Inci Ötker.

Format:

Book

Government document

Author/Creator:

Podpiera, Jiri.

Contributor:

Ötker, Inci.

Series:

IMF Working Papers; Working Paper ; No. 2010/153

IMF Working Papers

Language:

English

Subjects (All):

Credit--Management--Europe.

Credit.

Swaps (Finance)--Europe.

Swaps (Finance).

Physical Description:

1 online resource (51 p.)

Place of Publication:

Washington, D.C. : International Monetary Fund, 2010.

Summary:

This paper attempts to identify the fundamental variables that drive the credit default swaps during the initial phase of distress in selected European Large Complex Financial Institutions (LCFIs). It uses yearly data over 2004 - 08 for 29 European LCFIs. The results from a dynamic panel data estimator show that LCFIs’ business models, earnings potential, and economic uncertainty (represented by market expectations about the future risks of a particular LCFI and market views on prospects for economic growth) are among the most significant determinants of credit risk. The findings of the paper are broadly consistent with those of the literature on bank failure, where the determinants of the latter include the entire CAMELS structure - that is, Capital Adequacy, Asset Quality, Management Quality, Earnings Potential, Liquidity, and Sensitivity to Market Risk. By establishing a link between the financial and market fundamentals of LCFIs and their CDS spreads, the paper offers a potential tool for fundamentals-based vulnerability and early warning system for LCFIs.

Contents:

Cover Page; Title Page; Copyright Page; Contents; I. Introduction; 1. CDS and Recapitalization; II. Methodology; III. Definition of the Dependent and Explanatory Variables; IV. Data Sample; 1. Data Summary Statistics; V. Estimation Results; A. Baseline Model; 2. Results: Baseline Model; B. Robustness to Alternative CAMEL Indicators; 3. Results: Two-step Estimates of the Baseline with Alternative CAMEL Indicators; C. Robustness to Alternative Market Risk Indicators; 4. Results: Two-step Estimates of the Baseline with Alternative Market Risk Indicators

VI. Concluding Remarks and Policy ImplicationsI. CDS Spreads and LCFI Interventions; II. Fundamental Risk from LCFI's Risk-Return Profile; References; Footnotes

Notes:

"June 2010".

Includes bibliographical references.

Description based on print version record.

ISBN:

9786612846250

9781462332533

1462332536

9781455279814

1455279811

9781282846258

1282846256

9781455201365

1455201367

OCLC:

867926663