Journal of Credit Risk

Default intensity and expected recovery of Japanese banks and the government: new evidence from the CDS market

Yoichi Ueno, Naohiko Baba


Using data of credit default swap (CDS) spreads for the four Japanese megabanks and the government, we jointly estimate the default intensity and expected recovery (loss) given at default. In doing so, we further identify the difference in the expected recovery rates between senior and subordinated contracts. Main results are as follows: (i) the default intensities for each entity substantially rose in times of a banking crisis since the late 1990s; (ii) the expected recovery rates for subordinated contracts are significantly smaller than those for senior contracts; and (iii) each bank’s default intensity is significantly cointegrated with the Japanese government’s default intensity.

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