Distance-to-default in banking : a bridge too far? /
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 limitatio...
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| Main Authors: | , |
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| Corporate Author: | |
| Format: | Electronic eBook |
| Language: | English |
| Published: |
[Washington, D.C.] :
International Monetary Fund, Monetary and Financial Systems Dept.,
©2006.
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| Subjects: | |
| Online Access: |
Full text (MFA users only) |
| ISBN: | 1283511649 9781283511643 9781451909289 1451909284 |
| Local Note: | ProQuest Ebook Central |
| Summary: | 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. |
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| Physical Description: | 1 online resource (17 pages) : illustrations |
| Format: | Master and use copy. Digital master created according to Benchmark for Faithful Digital Reproductions of Monographs and Serials, Version 1. Digital Library Federation, December 2002. |
| Bibliography: | Includes bibliographical references. |
| Series: | IMF working paper ;
WP/06/215. |
| Library Staff: | View instance in FOLIO |