chapter  4
27 Pages

The determinants of bank CDS spreads: evidence from the financial crisisis

WithLaura Chiaramonte, Barbara Casu

Banks have played a crucial role in the making and spread of the recent financial crisis. Ind ed, at the most cr tical moment of the crisis, the key player was none other than a bank, Lehman Brothers, whose default sparked the most acute phase, and had a number of immediate repercu sions on the whole system.1 The demise of the American investment bank is considered an important event not only because it was responsible for a su den collapse in global busine s confidence – it was the firs time that a major bank was allowed to fail – but also because it marked a watershed in the history of credit default swaps (CDS). The bankruptcy of Lehman Brothers in September 2 08 and, shortly afterwards, the near downfall of the insurance conglomerate American International Group, both of which were involved in the CDS sector, polarised attention towards the CDS activ ties of the major international banks.