Credit Risk and Financial Regulations

Credit risk research examines why borrowers—from corporations to sovereign governments—pay different interest rates than risk-free benchmarks, and what drives those gaps, called credit spreads, to widen or narrow over time. At the center of the work are instruments like credit default swaps and bond yields, which let researchers measure market expectations of default separately from the liquidity premiums investors demand simply for holding less-traded securities. Getting this decomposition right matters enormously for regulators trying to set capital requirements and for investors pricing sovereign debt across countries with very different institutional environments. Active debates concern how much credit ratings from agencies like Moody's or S&P genuinely add information versus merely amplify market movements, and whether the regulatory frameworks built around those ratings create feedback loops that make financial stress worse rather than better.

Works

50,364

Total citations

410,618

Keywords

Credit Spread ChangesDefault RiskCredit Default SwapsBond YieldsCredit RatingsSovereign Debt