The aim of this paper is to evaluate the contribution of several aspects of the bank-firm relationships in anticipating the corporate default event at least one year before. Using a unique dataset on a sample of 113 co-operative credit banks and about 12,000 firms operating in Italy, between...

For nearly two years, the two of us have had a running discussion of the costs and benefits of automatic stays in bankruptcy for qualified financial contracts (QFCs) such as derivatives and repurchase agreements, particularly those held by systemically important major dealer banks. Under current...

A central counterparty (CCP) is a financial market utility that lowers counterparty default risk on specified financial contracts by acting as a buyer to every seller, and as a seller to every buyer. When at risk of failure, a CCP could be forced into a normal insolvency process such as...

We propose a unified structural credit risk model incorporating insolvency, recovery and rollover risks. The firm finances itself mainly by issuing short- and long-term debt. Short-term debt can have either a discrete or a more realistic staggered tenor structure. We show that a unique threshold...

By treating derivatives and financial repurchase agreements much more favorably than it treats other financial vehicles, American bankruptcy law subsidizes these arrangements relative to other financing channels. By subsidizing them, the rules weaken market discipline during ordinary financial...

Reviews on financial distress prediction models indicate that these techniques give highly reliable estimates of probabilities of default (PDs) and loss given default (LGD) only for relatively short horizons, rarely beyond two years. Major stakeholders, e.g. investors and bank risk and capital...

Distance to default (DTD) is a strong predictor of default risk derived from structural models. This paper specifies a stressed version of DTD ("stressed DTD'') to measure time-varying corporate default risk in the event that a systematic stress scenario occurs. Compared with the ordinary DTD,...

When contemplating Chapter 11, firms often need to seek financing for their continuing operations in bankruptcy. Because such financing would otherwise be hard to find, the Bankruptcy Code authorizes debtors to offer sweeteners to debtor-in-possession (DIP) lenders. These inducements can be...

Constructing a comprehensive data set of financially distressed firms that restructured their debts from 2000-2014, we find that firms with financial institutions' debt-equity simultaneous holdings are more likely to restructure out of court than to file for bankruptcy. The effect is stronger...

We examine whether CDS contracts written on individual banks are effective leading indicators of bank financial distress during a period of systemic bank crisis. Changes in CDS spreads are found to yield a robust signal of failure across a set of European and US banks, in keeping with indirect...