Credit Default Swaps (CDS) instruments - as an indicator of credit risk - were one of the most prominent innovations in financial engineering. Very limited literature existed on the drivers of CDS spreads before the financial crisis due to the opacity of this market and its lack of transparency. First, this thesis investigates the drivers of CDS spread in the UK banking sector, by considering the role of the housing market, over the period of 2004-2011. I find that, in the long-run, house price dynamics were the main factor contributing to wider CDS spreads. In addition, I show that a rise in stock prices lead to higher availability of capital and therefore increased bank borrowing activities, which led to lower credit risk. Furthermore, findings show that with higher aggregate bank liquidity, banks tend to grant more loans to low-income consumers, thus increasing bank credit risk. In addition, in the short-run, I employ the Structural VAR by imposing short-run restrictions to identify the five shocks arising from the CDS spread, the house price index, the yield spread, the TED spread, and the FTSE100. The SVAR findings indicate that a positive shock to house prices significantly increases the CDS spread in the medium-term, in the UK banking sector. In addition, apart from its own shock, the house price shock explains a big part of the variance (nearly 20%) in CDS spread. These results remained robust even after changing the ordering of the variables in the Structural VAR. Second, considering the bank-level factors across 30 countries and 115 banks, I find most significant bank-level drivers of the CDS spread were asset quality, liquidity and the operations income ratio. As such, banks with better asset quality, high levels of liquidity and operations income ratio were subject to lower CDS spreads and credit risk. Furthermore, larger banks were found to be more risky than smaller banks. We have conducted the U-test and our results indicate the presence of a U-shape relationship between bank size and bank CDS spread. It should be noted that in order to ensure that our results are robust, we used several estimation frameworks, including the FE, RE and alternative Generalized Method of Moments (GMM) approaches, which all prove the existence of a U-shape relationship between the CDS spread and bank size. In addition, we find a threshold level of bank size, which shows that banks growing beyond this point are subject to wider CDS spreads. Finally, I consider the difference in financial systems at country-level and regulatory structures at bank-level, in a panel setting, over the period of 2004-2011. At country-level, my findings directly link financial deepening to higher credit risk, reflecting a sign of credit bubble. Besides, at bank-level, I confirm my previous findings whereby asset quality, liquidity and operations income remain significant drivers of the CDS spread.

Thesis (M.S.Eco.)--Baylor University, 2008. / Includes bibliographical references (p. 52-53).

Dissertation, Universität zu Köln, 2009. / Business and Economics (German Language) (Springer-11775) (GWV).

Dissertation, Universität zu Köln, 2009. / Business and Economics (German Language) (Springer-11775) (GWV).

Diss. Universität Duisburg-Essen, 2008. / Business and Economics (German Language) (Springer-11775) (GWV).

Diss. Universität Duisburg-Essen, 2008. / Business and Economics (German Language) (Springer-11775) (GWV).

What explains the form and substance of international financial standards? Form refers to the legal or non-legal bindingness of an international standard. Substance refers to how significantly the standard changes the international status quo. The form and substance of international standards on bank capital adequacy, hedge funds, “bail-in” resolution, and insurance capital adequacy challenge the predictions of major rationalist, realist, and two-level perspectives. I propose a novel theory and present original evidence to test two central claims. First, the structure of domestic institutions and strategic interaction within a state incentivizes an actor from that state to prefer and pursue a certain form of international standard: legally or non-legally binding. The state actor, as a first mover, aims to propose a standard at an appropriate international institution which produces standards of its preferred form. Second, the state actor must bargain with representatives of other states according to certain decision-making rules at the international standard-setting institution. The type of decision-making rule used in bargaining—not the market power or other characteristics of key players—explains the substance of the final standard. More restrictive decision-making rules, which use majority or supermajority voting, lead to greater change than open rules, which are based on consensus or unanimity voting. My empirical findings remove the veneer of technocratic legitimacy associated with international standard-setting to reveal intense distributional battles. In pursuing the Basel capital standards, the US Federal Reserve has been motivated more by turf wars with other US bank regulators than by its publicly stated desire to create a “level playing field” for internationally active banks. Supported by domestic collaboration between regulators and industry, French officials set a legally binding and deep de facto international standard for hedge fund managers over the vigorous objections of the City of London. By pursuing a soft standard on bail-in, the Bank of England has sought not only to protect taxpayers from costly bailouts, but also to keep Her Majesty’s Treasury at arm’s length. The lack of international insurance regulation is due not to the lack of effort by the UK Financial Services Authority and its European partners, but to open decision-making rules that allow US state regulators, albeit fragmented and under-resourced, to protect the international status quo. In each of these cases, I specify how domestic and international institutional settings provide enduring opportunities and constraints for key players in global finance.