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.
Krishnan, C.N.V., Peter Ritchken, and James B. Thomson. 2003. “On Credit Spread Slopes and Predicting Bank Risk” Federal Reserve Bank of Cleveland, Working Paper No. 03-14. https://doi.org/10.26509/frbc-wp-200314