Contagion of Affinity: Predicting CDS Spikes in Global Systemically Important Banks

This paper examines the predictive power of credit default swap (CDS) spread correlations in the context of the 2023 Credit Suisse failure. Using a two-window design, we separate a 50-week pre-crisis period from the final two-week “jump” window and evaluate whether historical market-implied dependence anticipated cross-sectional crisis repricing across Global Systemically Important Banks (G-SIBs). We find that the magnitude of each bank’s crisis-period CDS jump is significantly related to its prior co-movement with Credit Suisse across the full sample (r=0.80, p<0.001, n=15), indicating that contagion followed a structured dependence pattern rather than an undifferentiated panic dynamic. The relationship holds across both regional cohorts, with the European G-SIB group displaying a considerably tighter fit (r=0.96, p<0.001, n=8) than the non-European group (r=0.84, p=0.019, n=7), consistent with geographic and institutional proximity to Credit Suisse amplifying the contagion channel. Additional empirical outputs, including stepwise-regression diagnostics and placebo/event-time checks, support the interpretation that the estimated relationship contains an economically meaningful signal while remaining partly event-driven in short horizons. Overall, the evidence suggests that rolling CDS dependence regimes may serve as a useful leading indicator for identifying institutions most likely to face disproportionate repricing pressure during a localized systemic shock. These findings are drawn from a single crisis episode and 15 peer institutions; they should be read as preliminary evidence of a potentially useful mechanism rather than as the basis for an operational early-warning system, and replication across additional crises and institutional settings is required before broader generalization.