Widening of credit spreads As time has passed, it has not been only bank credit spreads that have widened. We know from past experience that variations in credit spreads can be driven by several different factors.
One basic component of credit spreads is expected loss from default, while a second relates to risk premiums, of which there are two main types: a credit-risk premium and an illiquidity premium. 2 The credit-risk premium is related to the variability of underlying expected loss, and both this premium and the expected loss from default itself are affected by changes in macroeconomic activity.