On Credit Spread Slopes and Predicting Bank Risk
We examine whether credit-spread curves, engendered by a mandatory subordinated-debt requirement for banks, would help predict bank risk. We extract the credit-spread curves each quarter for each bank in our sample, and analyze the information content of credit-spread slopes. We 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: credit-spread curves, credit-spread slopes, bank risk
JEL Codes: G28, G12, G18
Suggested citation: Krishnan, CNV, Peter Ritchken, and James Thomson, 2003. "On Credit Spread Slopes and Predicting Bank Risk,” Federal Reserve Bank of Cleveland, Working Paper, no. 03-14.