On credit spread slopes and predicting bank risk

Krishnan, C. N. V.; Ritchken, Peter H.; Thomson, James B.

doi:10.26509/frbc-wp-200314

Working Paper

On credit spread slopes and predicting bank risk

Abstract: The authors examine whether credit-spread curves, engendered by a mandatory subordinated-debt requirement for banks, would help predict bank risk. They extract the credit-spread curves each quarter for each bank in our sample, and analyze the information content of credit-spread slopes. They find that credit-spread slopes are significant predictors of future credit spreads. However, credit-spread slopes do not provide significant additional information on future bank-risk variables, over and above other bank-specific and market-wide information.

Keywords: Bank capital; Risk;

https://doi.org/10.26509/frbc-wp-200314