Bank bond spreads after the Global Financial Crisis: From fragility to fundamental strength
Banks spreads
Fecha: julio 2025
Juan Jesús García Curtit, Salvador Jiménez and Javier Pino
SEFO, Spanish and International Economic & Financial Outlook, V. 14 N.º4 (July 2025)
The Global Financial Crisis reversed the historical norm in bond markets where financial institutions’ debt, supported by regulation, liquidity access, and implicit state backing, had typically traded at tighter spreads than non-financial corporate debt. Following the collapse of Lehman and the subsequent sovereign-bank “doom loop” of the eurozone crisis, investor perceptions shifted sharply, and bank spreads widened structurally despite significant recapitalization efforts. While unconventional monetary policy helped stabilize the sector, banks faced ongoing headwinds from flat yield curves, low returns, and the introduction of loss-absorbing capital requirements. Since 2022, a mix of rate hikes, organic capital generation, reduced sovereign risk, and international diversification has materially improved fundamentals, narrowing risk premia in instruments such as credit default swaps (CDSs). Even so, financials still trade at a modest premium, less a reflection of sector weakness than of the banking sector’s structural complexity and diversity. As tracked by the iTraxx Senior index, a key gauge of CDS spreads across European issuers, this divergence remains a central feature of the post-crisis credit landscape.