نظم و انضباط بازار و شکست بیش از حد بزرگ در بازار سی دی: آیا نظم و انضباط موجود در بازار اندازه بانک ها را کاهش می دهد ؟

This paper examines market discipline in the credit default swap (CDS) market and the potential distortion of CDS spreads which arises when a bank is thought to be too-big-to-fail. Overall, we find evidence for market discipline in the CDS market. However, CDS prices are distorted by a size effect when a bank is considered to be too-big-to-fail. A 1 percentage point increase in size reduces the CDS spread of a bank by about 2 basis points. We further find that some banks have already reached a size that makes them too-big-to-be-rescued. While the price distortion for these banks decreases, the existence of banks that are considered to be too-big-to-rescue raises important new issues for banking supervisors.

An important issue for investors and supervisors is the information content of banks' security prices. The interest in this issue is twofold. First, investors may exert direct market discipline by identifying and controlling banks' risk-taking activities. Second, when investors exert market discipline, supervisors can extract information on the risk profile of banks by monitoring security prices and use this information to exercise indirect market discipline. An ample literature has investigated the role of market discipline in controlling the risk-taking activities of banks. Taking a broader perspective, the term market discipline contains two distinct aspects. First, market discipline can be exercised through the pricing of securities. This requires that investors evaluate the risk profile of a bank and incorporate their assessment into the bank's security price. The second issue deals with the ability of investors to subsequently influence managerial decisions

This paper analyzes the link between CDS spreads and the risk profile of banks. The results point to a significant and robust link, which provides evidence for market discipline. In addition, we examine pricing effects due to banks' size. We hypothesized that CDS spreads decline with banks' size, because of an increase in the probability of a bailout due to too-big-to-fail. We find that an increase in mean size of 1 percentage point reduces the CDS spread by about 2 basis points. While this appears comparably small, mergers of large banks can induce substantially larger changes in banks' size and subsequently in their CDS spreads. This raises several concerns. First, the reduction in CDS spreads may limit any potential influence of market discipline on bank management via refinancing costs and thus provide a competitive advantage. Second, banks might pursue a socially suboptimal size to exploit better refinancing conditions. Third, supervisors may receive wrong market signals when they monitor distorted market prices.