Samaniego-Medina, Reyes and Trujillo‐Ponce, Antonio and Cardone-Riportella, Clara and Parrado-Martínez, Purificación, Determinants of European Bank CDS Spreads in Times of Crisis (December 1, 2013). WP Funcas, No. 736. Available at SSRN: http://ssrn.com/abstract=2375715

“Since the beginning of the financial crisis, the credit default swap (CDS) spreads of the European banks have severely increased. This paper empirically analyzes the determinants of CDS spreads of a sample of 45 European banks over the 2004-2010 period. We use variables related to accounting- and market-based data, an indicator of liquidity in the CDS market and several proxy variables for the macroeconomic environment in which these financial institutions operate. These variables were also analyzed during the pre-crisis period (2004-2006) and the crisis period (2007-2010). The primary conclusions are that the market variables and the variable that captures contract liquidity have the greatest explanatory power, whereas the accounting and macroeconomic variables included in our regression do not seem to play a significant role. Additionally, we find that the explanatory power of the model is considerably higher during the crisis period than during the pre-crisis period. This finding could be explained by a lower sensitivity of CDS spreads during periods of economic stability.”