In the aftermath of the financial crisis, to reinforce the stability of the financial system, policy makers and the Basel Committee have developed proposals to ensure that financial institutions maintain sufficient capital buffers. The December proposal by the Basel Committee outlines...

We investigate whether the spread of corporate debt contacts can be explained by their ultimate recovery rates. Using the actual realized recovery rates of defaulted debt instruments issued in the U.S. from 1962 to 2007, we find that recovery rate is reflected in the spread at issuance, and that...