European Parliament Library

Distance-to-Default in Banking :, A Bridge Too Far?, Amadou Sy, Jorge Chan-Lau

Creator
Abstract
In contrast to corporate defaults, regulators typically take a number of statutory actions to avoid the large fiscal costs associated with bank defaults. The distance-to-default, a widely used market-based measure of corporate default risk, ignores such regulatory actions. To overcome this limitation, this paper introduces the concept of distance-to-capital that accounts for pre-default regulatory actions such as those in a prompt-corrective-actions framework. We show that both risk measures can be analyzed using the same theoretical framework but differ depending on the level of capital adequacy thresholds and asset volatility. We also use the framework to illustrate pre-default regulatory actions in Japan in 2001-03
Table Of Contents
""Contents""; ""I. INTRODUCTION""; ""II. WHAT HAPPENS BEFORE A BANK DEFAULT?""; ""III. A UNIFIED FRAMEWORK FOR DISTANCE MEASURES : DISTANCE-TO-CAPITAL""; ""IV. CASE STUDY: THE RESONA AND ASHIKAGA BANKS""; ""V. CONCLUSIONS""; ""REFERENCES""
Language
eng
Literary Form
non fiction
Note
"September 2006."
Physical Description
1 online resource (19 p.)
Specific Material Designation
remote
Form Of Item
online
Isbn
9781283511643

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