Giorgia Simion

wird ihr Paper

"Basel Liquidity Regulation and Credit Risk Market Perception: Evidence from Large European Banks”

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Die Veranstaltung findet in Raum D5.1.003 von 12:00-13:00 statt.

Abstract: Following the recent financial crisis, the Basel Committee on Banking Supervision (BCBS) undertook a negotiation process that led to a liquidity reform package known as the new Basel III liquidity framework. This paper aims at assessing the impact of BCBS liquidity regulation announcements on bank creditors. Using an event study on Credit Default Swap (CDS) data of large European banks over the 2007- 2015 period, we found evidence that creditors increased their expectations of a credit event following the regulatory events, with CDS spreads widening. Our results also show that the negative CDS market reaction weakened when banks held higher capital and liquidity funding ratios. On the contrary, the negative CDS market reaction strengthened when banks held higher bad loans. Provisions against loan losses positively moderated such effect. Although credit risk increased during the regulatory events on liquidity, we provide some evidence that if banks correctly adjusted the quality and the mix of their assets and liabilities, they could limit the potential side effects of the adoption of the new rules. Overall, the research contributes into the understanding of the Basel III effects on bank credit risk and financial stability.