In this paper, we analyze whether regulation reduced risk during the credit crisis and the sovereign debt crisis for a cross section of global banks. In this regard, we examine distance to default (Laeven and Levine, 2008), systemic risk (Acharya et al., 2010), idiosyncratic risk, and systematic risk. We employ World Bank survey data on regulations to test our conjectures. We find that regulatory restrictions, official supervisory power, capital stringency, along with private monitoring can explain bank risk in both crises. Additionally, we find that deposit insurance schemes enhance moral hazard, as this encouraged banks to take on more risk and perform poorly during the sovereign debt crisis. Finally, official supervision and private monitoring explains the returns during both crisis periods.

Ratings issued by credit rating agencies (CRAs) play an important role in the global financial environment. Among other issues, past studies have explored the potential for predicting these ratings using a variety of explanatory factors and modeling approaches. This paper describes a multi-criteria classification approach that combines accounting data with a structural default prediction model in order to obtain improved predictions and test the incremental information that a structural model provides in this context. Empirical results are presented for a panel data set of European listed firms during the period 2002–2012. The analysis indicates that a distance-to-default measure obtained from a structural model adds significant information compared to popular financial ratios. Nevertheless, its power is considerably weakened when market capitalization is also considered. The robustness of the results is examined over time and under different rating category specifications.