Were U.S. Banks Exposed to the Greek Debt Crisis? Evidence from Greek CDS Spreads

Abstract

This study provides an empirical analysis of the impact of the Greek debt crisis on stock returns of U.S. commercial banks. We find that good (bad) news events pertaining to the Greek debt crisis, identified by large changes in the Greek CDS spread, produce insignificant positive (negative) abnormal stock returns. While banks were exposed to Greek debt, their exposure was such that it did not result in any abnormal fluctuations in bank values at the height of the crisis. When we measure the sensitivity of bank returns to changes in the Greek CDS spread in an effort to measure banks’ exposure to the crisis, we find that changes in the Greek CDS spread provide no additional explanatory power for bank returns beyond what a U.S. market index does. Finally, we find no bank characteristic that allows us to consistently predict the effect of the Greek crisis on specific banks.