Journal Article

Market indicators, bank fragility, and indirect market discipline

Abstract: As a theoretical matter, signals from the bond and equity markets satisfy minimal requirements for a useful indicator. Using option pricing formulas, it is shown that a distance to default measure, based on equity market value and equity volatility, increases with the market value of bank assets and decreases with bank leverage and equity volatility.

Keywords: Bank profits; Bank stocks; Banks and banking - Accounting; Bank supervision;

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Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Economic Policy Review

Publication Date: 2004

Issue: Sep

Pages: 53-62

Order Number: v.10 no.2