Fundamental determinants of credit default risk for European and American banks
Vol. 10, No 3, 2017
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Patrycja Chodnicka-Jaworska
Department of Financial System of Economy, Faculty of Management University of Warsaw Poland Email: pchodnicka@wz.uw.edu.pl
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Fundamental determinants of credit default risk for European and American banks
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Piotr Jaworski
Department of Financial System of Economy, Faculty of Management University of Warsaw Poland Email: pjaworski@wz.uw.edu.pl
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Abstract. The aim of the paper is to identify the fundamental variables driving banks’ credit default swaps. Quarterly data from 2004 to 2015 for European and American banks have been used. The analysis has been prepared through static panel data models. The following hypothesis has been put forward: the earnings potential, and economic uncertainty significantly influence credit risk. The independent variables used are CAMELS factors – Capital Adequacy, Asset Quality, Management Quality, Earnings Potential, Liquidity, and Sensitivity to Market Risk. The CDS spreads are most sensitive to the market risk factors whereas capital adequacy, earnings and liquidity indicators have weaker impact. |
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Received: June, 2017 1st Revision: August, 2017 Accepted: October, 2017 |
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DOI: 10.14254/2071-8330.2017/10-3/4
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JEL Classification: C23, E51, G21 |
Keywords: CDS spreads, CAMELS, dynamic panel data models |
