Equity and Bond Market Signals as Leading Indicators of Bank Fragility

@inproceedings{Gropp2001EquityAB,
  title={Equity and Bond Market Signals as Leading Indicators of Bank Fragility},
  author={Reint E. Gropp and Giuseppe Vulpes},
  year={2001}
}
We analyse EU banks’ equity market-based distances-to-default and subordinated bond spreads in the secondary market in relation to their capability of signalling a material weakening in banks’ financial condition. Both indicators are demonstrated to be complete indicators of bank fragility, reflecting relevant information of default risk; and also to be aligned with the supervisors’ conservative perspective. We use two different econometric models: a logit-model, estimated for a number of… CONTINUE READING
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