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Deutsche Bundesbank, Forschungszentrum, Frankfurt am Main >
Discussion Paper Series 2: Banking and Financial Studies, Deutsche Bundesbank >
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http://hdl.handle.net/10419/27689
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| Title: | | Does banks size distort market prices? Evidence for too-big-to-fail in the CDS market  |
| Authors: | | Völz, Manja Wedow, Michael |
| Issue Date: | | 2009 |
| Series/Report no.: | | Discussion Paper Series 2: Banking and financial studies 2009,06 |
| Abstract: | | This paper examines the potential distortion of prices in the CDS market caused by too-big-to-fail. Overall, we find evidence for market discipline in the CDS market. However, CDS prices are distorted due to a size effect which arises when investors expect a public bail-out as a result of too-big-to-fail. A one percentage point increase in size reduces the CDS spread of a bank by about two basis points. We further find that some banks have already reached a size that makes them too-big-to-be-rescued. While the price distortion for these banks decreases the existence of banks that are considered to be toobig-to-rescue raises important new issues for banking supervisors. |
| Subjects: | | Market Discipline Too Big To Fail Too Big to Rescue CDS Spreads |
| JEL: | | G14 G21 G28 |
| ISBN: | | 978-3-86558-505-9 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Discussion Paper Series 2: Banking and Financial Studies, Deutsche Bundesbank
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